How Federal Government plans to increase VAT to 7.2% affects
you
President Muhammadu Buhari has announced that the 2020
budget estimate will be based on the newly proposed 7.5% Value Added Tax (VAT).
The disclosure was made by the President while presenting the 2020 budget to
the National assembly on Tuesday.
According to the President, the additional revenue to be
generated from the higher VAT rate would be deployed to the health and
education sectors as well as the various infrastructural development
programmes.
The details: While speaking on the parameters and fiscal
assumptions underpinning the 2020 appropriation and finance bill, President
Buhari disclosed that a conservative oil price benchmark of US$57 per barrel
has been adopted, while the daily oil production estimate is put at 2.18 mbpd
with an exchange rate of N305 per US Dollar.
In order to achieve the 2020 budget, the president included
a finance bill for the consideration of the Senate and passage into law. In the
finance bill, five strategic objectives were highlighted. The five strategic
objectives include:
Promoting fiscal equity by mitigating instances of
regressive taxation;
Reforming domestic tax laws to align with global best
practices;
Introducing tax incentives for investments in infrastructure
and capital markets;
Supporting Micro, Small and Medium-sized businesses in line
with our Ease of Doing Business Reforms; and
Raising Revenues for Government.
New VAT approved? In
the financial bill draft, it was clearly stated that the 2020 Appropriation
Bill is based on the proposed VAT rate of 7.5%, which was recently approved by
the Federal Executive Council (FEC). Recall, that the FEC approved the VAT
increment from 5% to 7.5%.
According to the President, as the States and Local
Governments are allocated 85% of all VAT revenues, the new VAT guarantees
greater quality and efficiency in states’ spending.
It was further stated that the VAT Act already exempts
pharmaceuticals, educational items, and basic commodities, which exemptions are
being expanded under the Finance Bill, 2019. Specifically, Section 46 of the
Finance Bill, 2019 expands the exempt items to include the following:
Additionally, the president disclosed that the threshold for
VAT registration is raised to N25 million in turnover per annum, such that the
revenue authorities can focus their compliance efforts on larger businesses
thereby bringing relief for the Micro, Small and Medium-sized businesses.
Key Takeaways:
Reactions are trailing the decision of the Presidency to adopt a senate
unapproved VAT to prepare a budget, as experts are of the opinion that the
government cannot just assume that the National Assembly will approve the VAT
increment from 5 to 7.5%.
While the proposed VAT increase still awaits the approval of
the National Assembly in order to give it a legal backing, this suggests that
the Federal government already assumes that the newly proposed VAT will
definitely get the backing of the national assembly.
The supposed approval also came against the backdrop of
several criticisms regarding the proposed VAT increase.
Experts have raised concerns that the proposed VAT increase
would heap more misery on the people.
However, with the inclusion, this suggests Nigerians should
brace up for the implementation of 7.5% which is expected to flag off by
January 2020. In essence, this is expected to increase the country’s revenue.
