The Nigerian government is set to increase the Value Added Tax (VAT) on goods from 5 percent to 7.2 percent in 2020. This was made known by the Finance Minister, Zainab Ahmed, while addressing journalist on Wednesday, September 12. The increase is subject to approval from the National Assembly and comes a few months after the Federal Inland Revenue Service announced that it would impose five percent VAT on online transactions, both domestic and international, from January 2020.
The increase of the VAT which is one of the lowest in the world is part of the government’s effort to generate income as it seeks to reduce its overdependence on crude as a source of revenue.
“This is important because the federal government only retains 15 percent of the VAT, 85 percent is actually for the states and local government. The states need additional revenue to be able to meet the obligations of the minimum wage,” she said.
Although Nigeria’s VAT is lower than that of other countries, it is disheartening to know that other governments are making plans on how to reduce VAT while the Nigerian government which seems to be antipeople is increasing theirs.
In 2018, Ghana reduced its VAT from 15 Percent to 12.5 percent. Five months ago, Egypt announced that its new law aims to reduce the VAT tax from 10 percent to 5 percent, which would provide financial liquidity to inject investment.
While some analysts are too quick to compare Nigeria’s VAT with other countries, they forget to mention that these countries0 have governments that work. Most of them can boast of having stable electricity, better roads, security and conducive environment for businesses which are gotten from taxpayers money. Whereas in Nigeria, the taxpayers’ monies cannot be accounted for and the government cannot provide the basic amenities needed by Nigerians.
What is even more surprising is that this increase is happening when the government just increased the minimum wage for workers in Nigeria and the country is still struggling with double taxation.
Rather than infringing more pains on Nigerians, the government needs to work on widening its Tax base. So far, raising more money from taxes has proved difficult in a country like Nigeria where so many small businesses are not registered. Last week, Nigeria’s tax chief told Reuters that N5.32 trillion ($17.39 billion) was collected in taxes in 2018 and his office was targeting N8.9 trillion this year.
Ahmed further stated that the expenditure for the year 2020 which was approved during the meeting was in the total sum of N10.07 trillion. This is three percent less than the approved expenditure in the 2019 budget that has been passed into law. The total expenditure includes statutory transfers, non-debt recurrent expenditure such as salaries and pensions and also the social intervention programme. The 2020 budget has a debt service estimated at N2.45 trillion and a sinking fund to retire maturing obligations issued to local contractors and other creditors in the sum of N296 billion.