A new Value Added Tax (VAT) of 7.2 percent has been approved for Nigeria by the Federal Executive Council (FEC), Minister of Finance, Budget and Planning, Mrs Zainab Ahmed, has announced.
Addressing newsmen after the weekly FEC meeting on Wednesday, the Minister said this increment was subject to an amendment of the VAT act of 1994 by the National Assembly and if approved by the parliament, the new rate will become effective from 2020.
Before now, there have been talks about an imminent hike in VAT paid on goods and services in the country so as to increase revenue generated by government to meet the needs of the nation, which depends mainly on sale of its crude oil.
During her interaction with journalists at the State House yesterday, Mrs Ahmed said, “We also reported to council and council has agreed that we start the process towards the increase of the VAT rate.
“We are proposing and council has agreed increase the VAT rate from five percent to 7.2 percent.”
She noted that, “This is important because the federal government only retains 15 percent of the VAT — 85 percent is actually for the states and local governments and the states need additional revenue to be able to meet the obligations of the minimum wage.
“This process involves extensive consultations that need 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 further said if approved by the lawmakers, “The total revenue estimate is the sum of N7.5 trillion for the year 2020 and N2.09 trillion that will be accruing to the federation account and VAT respectively.”
According to her, “There will, of course, be the distribution to the three tiers of government based on the statutorily revenue sharing formula as defined in the constitution and to this effect, it means the federal government will be receiving proposed aggregate of N4.26 trillion from the federal account and the VAT pool, while the states and the local governments are expected to receive N3.04 trillion and N2.27 trillion respectively.”
Recall that in 1994, under the regime of the late Military Head of State, General Sani Abacha, VAT, which replaced what was then known as sales tax, was fixed at 5 percent.
On May 28, 2007, former President Olusegun Obasanjo raised VAT to 10 percent, but his successor, late Umaru Yar’Adua, reversed it.