VAT Increase: Why Nigerian brands must be on red alert

The increase of the Value added tax (VAT) approved by Federal Executive Council on Wednesday (September 11, 2019) is a call to attention on Nigerian brands.

The Minister of Finance, Budget and National planning, Zainab Ahmed, who announced the approval said the VAT was increased from the current 5 per cent to 7.5 per cent.

According to her, the increase is important because ‘’the federal government only retains 15 per cent of the VAT, 85 per cent is actually for the states and local government and the states need additional revenue to be able to meet the obligations of the minimum wage.”

Ahmed, stated that the increase in the VAT was also included in the government’s revenue projection for 2020.

However, the finance minister also added that the implementation will not be immediate as there was the need to amend the current law.

“This process involves extensive consultations that needs to be made across the country at various levels and also it will involve the review of the VAT Act.

“So, it is not going to be implemented immediately until the Act is reviewed,” she said.

As we await the implementation, Nigerians have greatly reacted to the increase which will further affect the economy that has been described as struggling, even as firms are exploring measures to transfer costs to consumers.

The Chairman of Federal Inland Revenue Service (FIRS), Babatunde Fowler earlier this year, while appearing before the Senate Committee on Finance in Abuja, to give details of the 2019-2021 Medium Term Expenditure Framework and Fiscal Strategy Paper, stated that the impending VAT increase is one of the areas being looked at by FIRS to meet its 2019 revenue generation target of N8 trillion.

Fowler argued that Nigeria has the lowest VAT compared to neighbouring countries, saying that a lot of Nigerians travel to Ghana and other West African countries and they can see that theirs is much higher. And they pay when they go for those trips. We should be ready for an increase in VAT.

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However, in a report by PM news, a chartered stockbroker and Chief Executive Officer, Sofunix Investment and Communications, Mr Sola Oni, said the proposed increment would obviously increase transaction cost and make Nigerian market more uncompetitive.

Also, Mr Ambrose Omordion, the Chief Operating Officer, InvestData Ltd, said VAT increase at this stage and state of the economy would further hamper consumption due to low purchasing power.

In as much as the proposed increase may lead to increased costs, changes in business structures for brands, others have argued that there will be improved infrastructure and increased business efficiency in the country.

For top brands and small businesses, it is pertinent for them to be proactive and work towards adjustment,that is if the Proposed VAT increase is finally approved by the Senate.

While the administrative and financial challenges posed by VAT seem stressful and even a bit overwhelming for some, there are ways to make its implementation far more straightforward and affordable, and it may even help your business become more efficient in the long run.

Keeping an up-to-date implementation strategy to ensure you are retaining all the right records and following all the necessary steps to successfully achieve a stable net worth is very important for brands.

Furthermore, seeking consultant advises or employing an accounting specialist to help with the transition is also a lift for the brand.

To maintain brand’s net worth, it is advisable to merge if you have more than one business entity handling the same product or service. In order to avoid being taxed on transfers made between different stages, and therefore paying VAT twice, you will need to bring them together.

If you have a business with multiple entities, you may have to consider a more significant restructure to avoid VAT leakage.