Babajide Okeowo
It has been long in coming. There have been insinuations and whispers in the corridors of government for a long time that an increase in Value Added Tax, which is the tax imposed on consumption of products and services offered in the country was looming.
On Wednesday, January 23, 2019, the Federal Government came out with an official declaration, laying to rest the uncertainty surrounding the issue. Speaking in Abuja, the Minister of Finance, Zainab Ahmed, at the official inauguration of the Strategic Revenue Growth Initiative, an initiative aimed at generating more revenues to finance national development, said government would increase VAT sometimes in this year.
In her words, “I am sure you are aware that there are a number of items that are exempted from VAT, such as food and drugs. “There would be a VAT increase during the course of 2019, we will announce later the items and what the rate will be,” she said.
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Ahmed noted that the initiative would be implemented in the areas of achieving sustainable revenue generation to optimally collect revenues to maintain fiscal buoyancy and resilience.
“We will also be looking at new revenue streams and enhanced enforcement with regard to revenue collection on our existing revenue streams. Through the initiative, we hope to achieve cohesion between revenue generating entities and equipping them with cutting-edge tools and expertise needed to support high performance,” Ahmed said.
VAT is a tax on the supply of goods and services, which is eventually borne by the final consumer but collected at each stage of the production and distribution chain. It is eventually borne by the final consumer, however, sometimes multiple layers do bear part of the burden e.g. VAT on tax on services and fixed assets.
Untold hardship beckons
It i speculated that government is likely to jerk up VAT from the current 5% to 8.5%. However, many Nigerians are apprehensive of the effect of the policy on the people on one hand and the economy on the other.
Japheth Adebowale, Managing Director of a company located in Ejigbo area of Lagos in a telephone interview with The Nigerian Xpress Newspaper warned that any increase in VAT would automatically bring about untold hardship on the masses.
He said: “Nigeria is among the most unequal countries in the world in terms of income distribution, an increase in VAT will, therefore, shrink the purchasing power of the already impoverished Nigerian low-income earner. Nigeria has one of the highest poverty rates in the world and an increase in a consumption tax like VAT would be a huge burden on the average Nigerian. Goods and services, including foods and transportation will become more expensive and the common man will have less money to afford them,” he said.
Speaking further, Adebowale decried the fate of struggling companies in Nigeria, which are being stifled by the Federal Inland Revenue Services, FIRS, through taxes. While providing a copy of the VAT notice he got from FIRS to this reporter, Adebowale said the company was barely managing to start up, yet he has started receiving a notice to remit VAT.
“This is what you get when the government gets too incompetent and lack good economic policies. They resort to taxes,” he added.
According to Michael Bolarinwa, Nigerians are overtaxed, as it is and any plan to increase VAT is insensitive when there is nothing to show for the past collections.
“Nigerians pay taxes, tenement rates, VATs and all sorts of funny levies already. So, it will be a serious and insensitive affront on Nigerians to increase VAT at this time. The cost of living is already high as it is, income in many homes is not commensurate with expenses, so increasing VAT will be adding more woes to them,” he said.
Bolarinwa questioned the rationale behind the increase, seeing that nothing is being done with the past collection.
“The roads are terrible, no light, no good medical facilities, poor quality education, yet nobody is asking what they use all the taxes, VATs, levies they have collected in the past for, even the money that was borrowed.
His position is supported by Joseph Maotin, who labeled the proposed increase as reckless and a wrong move. He, however, advised the Federal Government to focus more on corporate tax, which he said is under-collected.
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“The proposition to increase VAT is reckless and wicked when some rich people don’t even pay taxes. If the government is truly sincere in its drive to generate income, VAT should not be the focus. The Voluntary Assets and Income Declaration Scheme, VAID, that was introduced sometime ago, what was the outcome? How many people within the income tax bracket has been captured before jumping to increase VAT?
The corporate tax is also under-collected, poor computation and horrible interpretation of company income tax act are allowing the huge sum of corporate profit to be untaxed. The amount of un-taxed personal income and corporate profit is huge. I believe we should have lower income taxes for low-income earners and high-income taxes for rich people,” he posited.
Mr. Chigozie Okeke, a manufacturer of glassware, lamented the planned increase, saying it might mean a death nail on many manufacturing companies.
“The economy, as it is now, is under severe stress, especially the manufacturing sector, which is already over taxed. Any more move to add another tax will sink the sector. Whether they call it consumption tax or whatever name they gave it, it will surely affect industries negatively.”
Giving with one hand, collecting with the other
To John Amakom, if the plan of the Federal Government to increase VAT actually sails through, it will be tantamount to giving with one hand and collecting with another and a lazy approach at generating income to fix the huge infrastructural deficit in the country.
“This is a very lazy approach. Instead of hiking VAT, the government should look inward. I sincerely hope this is not being proposed against the anticipated wage increase? If this is so, then it means that government is giving with the right hand and using left hand to collect it back from the people,” he said.
VAT increase long-overdue
However, Joseph Lawal disagrees. According to him, the review of the VAT rate is long overdue and a mistake on the part of past administrations to have left it unchanged. He, however, called for a cut in waste in government.
For how long would you have advised VAT rate to be left without review? This is the mistake done by various past administrations and should be corrected by this administration. There is a need to increase VAT from 5 per cent to about 8.5 per cent. Government revenue is too low due to fluctuations in global oil prices. We also need to cut waste in Government” he said.
Similarly, a tax expert Mr. Seye Obisanya, enjoins everyone to support the government in its drive for more revenue. He, however, warned that the outcome will be difficult to bear at first but beneficial in the end.
“A VAT increase would increase the government revenue stream, which can be invested in infrastructure, other developmental projects, and stimulate economic growth. The additional revenue would help reduce the government’s dependence on oil revenue. Whilst this is good, the immediate increase could reduce overall consumption and further slow-down the economy making it counter-productive at first” he said.
Nigeria still has one of the lowest VAT rates – Investigations
Investigations carried out by The Nigerian Xpress, however, shows that Nigeria still has one of the lowest VAT rates in the continent.
Nigeria with its current VAT rate of 5% is comparatively low to South Africa, Cameroon, and Zambia with a VAT rate of 14%, 19.25%,and16% respectively. Similarly,the VATrate in Kenya stands at 16%, it was recently restructured to about 12.5% in Ghana while Egypt charges 14% on standard goods and about 25% on luxury items.
Understanding VAT
According to the Federal Inland Revenue Service (FIRS), the body vested with the duty of collecting the tax, VAT is governed by Value Added Tax Act Cap V1, LFN 2004 (as amended). VAT is a consumption tax paid when goods are purchased and services rendered. It is a multi-stage tax borne by the final consumer. All goods and services (produced within or imported into the country) are taxable except those specifically exempted by the VAT Act. VAT is charged at a rate of 5%.
