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As new VAT regime takes off today, experts list low, high points for economy

By Mathias Okwe, Abuja
01 February 2020   |   4:21 am
The implementation of the new Value Added Tax (VAT) regime of7.5 percent in Nigeria commences today, up from the five per cent level it has been for decades.

•It’ll Check Corruption In Price Transfer Tax Scam, Save N8Tn, Says Ife
•A Welcome Development, Notes Analiefo

The implementation of the new Value Added Tax (VAT) regime of7.5 percent in Nigeria commences today, up from the five percent level it has been for decades. The implication of the 50 percent rise in the new consumption tax is that prices of goods are to bear new charges, including transportation fare, and in particular air travel as a result of the correspondent increase in some of the components which would ultimately be transferred to the consumers.
The increase is part of the outcome of the 2019 Finance Act introduced by the Federal Government last year as part of efforts to address the country’s revenue challenges which has been identified as the major problem of Nigeria’s Budget under-performance, through incremental tax strategy on the one hand and introduction of incentives to upscale compliance on the other hand.
The Finance Act is a wholesale amendment of seven (7) different tax laws, namely: Companies Income Tax Act, Petroleum Profit Tax Act, Personal Income Tax Act, Value Added Tax Act, Customs and Excise Tariff, ETC (Consolidation) Act, Capital Gains Tax Act and Stamp Duties Act. They all in one form or the other witnessed a review.

While the Act was given accent by President Muhammadu Buhari late last year, the implementation of the VAT aspect was shifted to February 1, 2020 by the Federal Ministry of Finance, apparently, due to its wider economic implication on the populace, particularly the ordinary Nigerians who are expected to bear the brunt of the 50 per cent rise in the VAT, which is a consumption tax.

Now, the inability of the Government to flag off the implementation on January 1, this year, when the new fiscal plan for this year began means a loss of enhanced revenue to the states who are the major beneficiaries of the VAT for the Federation Accounts Allocation Committee (FAAC) distributions latter in February.

The States are entitled to 85 per cent of the overall VAT collections, consisting of 50 per cent for the states and 25 per cent to the local councils. The Federal Government only keeps 15 per cent of the collections. In fact, part of the reasons the Federal Government said it was increasing the VAT was to assist states meet up with the new minimum wage bills.

Apparently to douse the pains expected on the ordinary citizens, the Federal Government recently elongated the list of VAT-exempted items to apart from basic food items and drugs to include school fees and baby items.Economic experts have thrown their weights behind the new fiscal direction, saying the new law also introduced a bouquets of incentives to boost employment through the grant of tax holiday to micro, small and medium enterprises (MSMEs) to enable breathe the air of suffocation.

A macroeconomics expert and consultant to multilateral agencies, including the ECOWAS, Prof. Emmanuel Ife, believes that the new policy was the best way to go if Nigeria must increase her tax to GDP which is ridiculously low at 7 per cent, saying: “The VAT rise is a welcome development, because Nigeria’s rate is the lowest in sub-Saharan Africa where the average is 18 per cent.

“Of course, don’t forget that one of the convergent criteria for the ECO single currency is the attainment of a VAT regime of 20 per cent. Therefore, we need to begin to make this progressive incremental effort so that we would not be left behind.
“Concerning the other gamut of the Finance Act, 2020, it is equally commendable because it affects every sector such as agriculture where companies are granted tax holidays up to five years, and in the MSME sector where firms with turn over below N25 million are now exempted from VAT.

“This action, will sure boost the sector and guarantee employment as well expansion as most of them would now deploy resources they would have used in tax payments for expansion and drive production here in Nigeria. This alone, would save Nigeria more than N8 trillion annually frittered away by corporate entities in transfer pricing when they do some aspects of production away from Nigeria.

“Again, there is also an incentive under the new Finance Act, for companies who remit their VAT collection on time. This will encourage voluntary compliance and thus enhance the tax haul,’’ Ife further said.

Development Economist and President, Change Africa Network, Dr. Emmanuel Analiefo described the review of the tax laws through the Finance Act as a practical demonstration of the Buhari-led government to now begin to listen to new idea.He appealed to the President to do away with all the bureaucratic ideologues within the polity that are resisting change, pointing out that it was important to note that the same ideas that created problems can never provide solution to such problems.
“The idea is a good one. I hope they maintain this course by being open to new ideas because the Nigerian economy is really not working and this is as a result of the failure of the bureaucracy to acceptalternative ideas from outside,” he explained, expressing disgust.

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