The current financial woes of the Nigerian is set to get worse as the Presidential Committee on Fiscal Policy and Tax Reforms has put forth a proposal to increase the current Value Added Tax (VAT) rate.
Mr. Taiwo Oyedele the chairman of the committee, has highlighted the need for this change during a policy exposure session.
Currently set at 7.5 per cent, the proposed adjustment aims to restructure the revenue-sharing formula, with states and local governments set to receive a larger portion.
Oyedele stressed the importance of ensuring transparency and neutrality in VAT collection, emphasizing that the burden should fall on the ultimate consumer.
To mitigate the impact on small businesses and the underprivileged, certain essential goods and services would remain exempt from VAT.
He said, “We are proposing that the federal government’s portion should be reduced from 15 per cent to 10 per cent. States’ portion will be increased, but they would share 90 per cent with local governments.
“In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax, so they said it would collect VAT and return 15 per cent as cost of collection, and that is the 15 per cent charged today came about. But we think it is too much.
So we must make it transparent and neutral, and this is what over 100 countries where they have VAT are doing.
“Nigeria’s economy is more than 50 percent in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50 percent and it won’t even fly.
“So we, therefore, need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services, and accommodation will carry zero per cent VAT. So, for the poor and small businesses, no VAT.”
