The Federal government is currently perfecting plans to steadily raise the rate for Value Added Tax (VAT) to 15% from the current 7.5% as part of efforts to improve local revenue mobilization and strengthen public finance buffers.
According to Nairametrics, this was contained In a document prepared by the Ministry of Finance it recently, according to the said document, the federal government plans to address its low revenue profile by improving tax compliance, especially company income tax and widening the tax base.
The document states, “Addressing low domestic revenue mobilization through various measures, including strengthening tax administration and improving tax compliance, particularly in corporate income tax (CIT), an increase in the value-added tax (VAT) rate and broadening the tax base. Progressively increase the VAT rate from 7.5 percent to 15 percent.”
Nigeria’s tax-to-GDP ratio is currently one of the lowest in the Sub-Saharan Africa region at just 10% as of 2023. As such, the Federal government progressively plans to increase the figure to 18% to match the average across major economies in Africa.
The planned progressive increase in the VAT rate to 15% represents a 100% increase in VAT compared to the current VAT rate of 7.5% which only started four years ago in 2020.
However, it is not known when the planned increase in VAT rate will take place.
Tinubu had in his campaign document promised to reform tax in the Nation’s economic system.
Tinubu had under the Tax Reform subheading of his campaign document declared that “during times of economic weakness, increasing taxation is counterproductive. Higher taxes drain an already weakened private sector, inviting possible economic contraction and higher unemployment We shall review the corporate tax system. This will be enhanced by the use of technology and effective policies”.
Tinubu’s Tax Reforms so far
On assumption of office, the president set up a Presidential Committee on Fiscal Policy and Tax Reforms chaired by former Fiscal Policy Partner and Africa Tax Leader at PriceWaterhouseCoopers (PwC), Taiwo Oyedele, with experts from both the private and public sectors as members.
The committee was tasked with the advancement of viable and cost effective solutions to issues such as the multiplicity of revenue collection agencies, the high cost of revenue administration, the excessive burden of compliance on ordinary taxpayers, the lack of effective coordination between fiscal and other economic policies within and across levels of government and poor accountability in the utilization of tax revenues.
The Chairman, Mr. Oyedele, revealed Nigeria has over 60 different forms of taxes and levies. with many of the taxes making life unbearable for the underprivileged in society. He said his committee was working to reduce taxes and levies to less than 10, which would be a decrease of 83.33 per cent.
At the end of the committee’s consideration it recommended the following :
Reducing Revenue Collecting Agencies to 1
The committee recommended that the Federal Inland Revenue Service, F.I.R.S, the statutory body responsible for tax collection and administration, be changed to the Nigeria Revenue Service. It also recommended that the 36 State Revenue Services should serve as departments under the Nigeria Revenue Service. Recognizing the complexities posed by numerous revenue-collecting agencies, including regulators that should be fostering a conducive business environment, the Committee proposed a consolidation. It suggests that Nigeria should streamline its revenue collection under a single agency, the Nigeria Revenue Service to enable efficiency in revenue collection and boost the country’s fiscal space.
Reducing the Number of Taxes to Single-Digit
The Committee had a clear target of taking Nigeria to a single-digit tax space from over 60 taxes and levies that have been overbearing on the business environment. It therefore recommended eight (8) taxes, including income tax, value-added tax, property tax, customs duties, excise tax, stamp duties, special levy, harmonised levy, and social security contribution (not a tax).
This was guided by the principles of eliminating nuisance taxes with very low revenue yield, focusing on high revenue-yielding taxes, merging taxes and levies that are imposed on similar tax bases, keeping the number of taxes across all levels of government in single digits, and institutionalising the tax harmonisation reform to ensure sustainability.
Changes to 2024 Withholding Tax Regulations
Key proposed changes from the committee to the proposed 2024 Withholding Tax Regulations included: Exemption of small businesses from Withholding Tax Obligations, Lower rates for businesses with low margins, Exemptions for Manufacturers and producers, such as farmers and Measures to curb tax evasion and avoidance
Proposed Executive Orders for Accelerating Economic Reforms
The committee also proposed four Executive Orders, which are expected to spur economic activities in the country
Adjustments to the Structure of the Federal Government Annual Budget
In the recommendations for the proposed National Fiscal Policy, the committee recommended adjustments to the structure of the Federal Government’s annual budget presentation to ensure that the government spends more effectively on critical areas that will stabilize the economy and create more opportunities for citizens.
It wanted the budget to be delineated into Infrastructure, Human Capital Development, Personnel Cost, and Administrative Overhead, among other key areas. this is also intended to guide the effective and efficient allocation of public resources to programmes, projects, and services.
Priority Sector Incentives
The Committee recommended broad-based Priority Sector Incentives over the “Pioneer Tax Incentive Scheme” in the country to guarantee sector-based, tenured and transparent incentives for businesses that are targeted at promoting economic development.
5% Reduction in Company Income Tax
The Committee also recommended a 5% reduction in the Company Income Tax for businesses in the country. This would reduce the CIT from 30% to 25% if implemented. this was to encourage more business investments in the economy, expansion of their operations, and the employment of more citizens, which would increase economic activities.
The Committee recommended the following changes to the VAT and Excise Duties including: Full deduction of input VAT on all supplies, including services and assets , Zero-rated list expanded to include agriculture, medical and educational and other basic consumptions , Exports of services and intellectual property to be zero rates , Compensating adjustment to VAT rate and alignment with ECOWAS directive on VAT rate, Faster refund process for VAT , VAT fiscalisation and electronic invoicing , Adjustment to VAT sharing formula and basis , Inclusion of VAT in the Exclusive Legislative List , Excise tax simplified and limited in scope with clarity as to rates, liable party and timing.
of all the taxation policies put forward by the president Tinubu administration, none has raised as much dust as the issue of Value Added Tax (VAT). this is due to the fact VAT is borne by the final consumer.
under the VAT arrangement, 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 7.5%.
some of the goods exempt from VAT include; Medical and pharmaceutical products, Basic food items, Educational books and materials, Baby products, Fertilizers, locally-produced agricultural chemicals, and veterinary medicine etc.
Minister of Finance and Coordinating Minister of the Economy, Wale Edun, confirmed plans to increase VAT while speaking at an investor meeting during the ongoing IMF/World Bank Annual Meetings in Washington DC.
According to the minister, the proposed VAT increase, currently under consideration by the National Assembly, will be applied gradually and will primarily affect luxury items stating that essential items consumed by poorer and vulnerable Nigerians would remain exempt from VAT or attract a zero rate. Edun added that a list of essential goods exempted from VAT will be made available to the public in due course.
The minister said “the Bills going through the National Assembly in terms of VAT will raise VAT for the wealthy on luxury goods, while at the same time exempting or applying a zero rate to essentials that the average citizens purchase.”
This taxation drive is part of efforts to drive up government revenue for the development of the country, such as: construction of roads, bridges, build homes, fix schools etc. as well as a part of solving the country’s current economic challenges.
The minister of Finance states that the poorest of the population would be exempted from the new taxation policies, however, there is palpable tension among the citizens because the impact of any VAT increase would invariably trickle down to every segment of the population in a variety of ways, as such Nigeria’s already poor population might become even poorer as a result of the proposed VAT increase.
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