7.2% VAT: FG to make N2 trillion in 2020

FG to make N2 trillion from 7.2% VAT in 2020.

The Federal Government of Nigeria is expected to generate not less than N2 trillion into the coffers in 2020 when he Value Added Tax (VAT) recently increased to 7.2 percent is implemented.

Going by the increasing revenue already recorded and the government’s plan to expand the VAT net, as well as expected improved remittances from corporate entities and government agencies with poor records, the target would be achieved.

The amount represents about 21 percent of the N9.7 trillion of the 2020 budget proposal that would be sent to the National Assembly. While the three tiers of government may get additional revenue from the VAT pool, despite eliciting mixed reactions, the poor masses would surely be at the receiving end, particularly its effects on purchasing power, through possible inflationary pressure in the market.

The Nigerian Bureau of Statistics (NBS) put the VAT pool in 2018 at N1.1 trillion, while the Federal Inland Revenue Service has already generated more than N600 billion in the first half of 2019.

According to the NBS 2018 figures, the recent increase in VAT from five percent to 7.2 percent (2.2 percent addition), representing 44 percent increase, is expected to generate additional N484 billion yearly. And by the current sharing formula, the Federal Government would get N73 billion; states, N242 billion; and councils, N170 billion.

The Partner/Head of Tax and Corporate Advisory Services at PwC, Taiwo Oyedele, said that while the increase of 2.2 percent might appear small, “it is, in fact, a 44 percent increase in VAT cost to many businesses and consumers.”

He said the negative impact would include increase in prices of products, leading to higher inflation and less disposable income for already poor households. “The situation will result in lower consumption and a decline in growth rate.”

Oyedele expressed fear that because input-VAT on capital expenditure is not allowed as a credit in Nigeria, the cost of real investments would go up and more people would evade the tax as compliant entities become less competitive.

“A fundamental principle of taxation is that people should pay according to their abilities. The question is: can everyone afford a 7.2 percent VAT rate? The answer is no. But are there people who should pay 7.2 percent or more? The answer is yes.