Nigeria’s VAT least among top 5 African economies – Investigation

…Why we increased VAT to 7.5 per cent – FG .It’s a step in the right direction, says Expert

…Proposed hike subject to NASS approval – FIRS

The recent increase in Value Added Tax (VAT) by the Federal Government has sparked reactions across the country.

Nigeria’s Value Added Tax (VAT), usually a consumption tax placed on a product whenever value is added at each stage, has been at five per cent since 2007.

Checks by the Daily Times show that the new Value Added Tax (VAT) proposal by the Federal Government is just half the average of other top African economies.

Shortly before the expiration of his second term, President Olusegun Obasanjo had reviewed Nigeria’s Value Added Tax (VAT) upwards from five per cent to 10 per cent before it was later reversed back to five per cent by late President Umaru Musa Yar’adua upon assumption of office.

A breakdown of Value Added Tax (VAT) for the five biggest economies in Africa shows that if eventually increased to 7.5 per cent, Nigeria’s Value Added Tax (VAT) will be slightly above an average half of Africa’s top economies.

Since 2014, Kenya’s VAT has been at 16 per cent, investigations by the Daily Times has shown.

In Kenya, the sales tax rate is normally charged consumers based on the purchase price of certain goods and services. The barometer used for measuring the sales tax rate is often referred to the highest rate.

Also, data has shown that revenues from the sales tax rate are vital sources of income for the government of Kenya.

In the same vein, Value Added Tax in South Africa is now levied at the standard rate of 15 per cent on the supply of goods and services by registered vendors.

The Daily Times reports that the VAT rate was placed at 14 per cent until March 31, 2018 when it was reviewed upwards by the incumbent government of Cyril Ramaphosa, a month after assuming office.

In Ghana, the Value Added Tax rate was adjusted to 12.5 per cent from 15 per cent which took effect from August 2018.

The country had split out the 2.5 per cent National Health Levy from the combined current Value Added Tax rate. The development brought the new Value Added Tax rate to 12.5 per cent instead of the current consolidated 15 per cent.

Value Added Tax in Ghana is charged on all taxable suppliers, as well as imports.

The Egyptian Value Added Tax rate rose from 13 per cent to 14 per cent on July 1, 2017.

The Value Added Tax rate as at 2016 was 13 per cent before the Egyptian government reviewed it to 14 per cent in July 2017. The Value Added Tax in Egypt has since been maintained at that figure.

Meanwhile, Nigeria’s Finance, Budget and National Planning minister, Zainab Ahmed, had last week stated that the Federal Executive Council (FEC) approved an increase in value added tax (VAT) from five per cent to 7.5 per cent.

The minister said the proposed increase from five per cent to 7.5 per cent and is based on the recommendation of the presidential technical advisory committee.

Ahmed said the committee comprised of economists from the public and private sectors with Managing Director and Chief Executive Officer of Financial Derivatives Company Limited, Bismack Rewane, serving as its chairman.

The committee in its report recommended the increase in the VAT rate from 5 per cent to 7.5 per cent.

“The proposed increase is subject to legislative intervention by the National Assembly who will have to amend the Revenue Act to reflect the proposed increase,” the statement read.

Accordingly, the VAT exempts food, medicines and other basic necessities, thereby reducing the economic burden on the poor.

“The existing VAT Act exempts the basic necessities such as food, medicines and education, which therefore minimises the impact on the poor and vulnerable segments of the Nigerian society from the burden thereof.

“The VAT increase, if correctly implemented, could bring in huge revenues, which would actually reduce the fiscal deficit burden,” the minister said.

Checks by the Daily Times show that increasing all forms of taxation will translate to more revenue for the government and less dependence on revenue from oil sources.

When the Daily Times contacted the Director, Corporate communications of the Federal Inland Revenue Service (FIRS), Wahab Gbadamosi to address the concerns of Nigerians on the proposed increase, the director said the proposal is subject to legislative approval.

Gbadamosi said the Value Added Tax (VAT) proposed increase is a policy document, which the ministry of finance, budget and national planning is in charge of.

“The proposed increase is a policy document which will come from the finance ministry and transmitted to the national assembly for approval.

“Therefore, I am not in a position to comment on it as we only implement policies at the FIRS,” he added.

Also, an economist and Chief Executive officer of Global Analytics Consulting Limited, Tope Fasua has supported the move by the federal government to increase the Value Added Tax.

He said the five per cent that Nigeria pays now is one of the lowest in the world, adding that a lot of Value Added Tax usually starts at five per cent.

“The other countries doing five per cent are the Middle East which used to be tax free, Saudi Arabia introduced Value Added Tax at five per cent in January 1, 2018, and also the United Arab Emirates,” Fasua said.

He, however, cautioned government in the area of efficiency in managing the finances of the country.

“What I don’t want is a scenario where we know government doesn’t manage our finances well, but if the people also fail to fulfil their own part, all of us will go into a downwards parallel together.

“So the reason why government is introducing the VAT is because finances are in shambles.

The period of self-deceit is over. Crude oil is trading below $60 per barrel. There were bombings of oil installations in Saudi Arabia recently which may lead to increase in prices of crude.

“But, Nigeria can’t just sit and wait for misfortunes of other countries so they can sell crude at high prices which will fade away.

“The culture in some oil companies, especially government owned and regulators is decadent and the way they spend the money is like there is no tomorrow.

“So we can’t plan for oil as the only revenue source. If we were wise, we will sterilize the proceeds from crude and be frugal in the way we spend, but it doesn’t appear we are,” he added.

He maintained that the government has also not been able to embark on serious reforms that will increase public finance which is why the Value Added Tax increase is the only way out.