Under the presidency of Major General Muhammadu Buhari (retd.), the Value Added Tax has brought in N10.1 trillion for the federal government.
This occurs in light of Zainab Ahmed, the Minister of Finance,’s recommendation that the incoming government raise the VAT rate from the current 7.5% to 10%.
When goods are purchased or services are provided, the Federal Inland Revenue Service collects VAT, which is a 7.5% consumption tax that is paid by the final consumer.
The Federation Accounts Allocation Committee typically distributes VAT revenue to the three levels of government.
According to the National Bureau of Statistics’ analysis of reports, VAT earnings increased annually over the course of the eight-year period.
In 2015, it made N759.4 billion, N777.5 billion in 2016, N972.4 billion in 2017, and N1.1 trillion in 2018.
N1.2 trillion was collected in VAT in 2019, N1.5 trillion in 2020, N2.1 trillion in 2021, and N2.5 trillion in 2022.
The Federal Government’s decision to raise the VAT rate from 5% to 7.5% in 2020 is not unrelated to the significant increase in VAT collection over the past two years. This was one of the tax changes that were included in the 2019 Finance Act to help the government meet its revenue goals.
In the meantime, economists argued that the incoming administration should not raise the VAT from 7.5% to 10% because doing so would stifle economic expansion.
“VAT is one of the ways to increase revenue and we still have to increase VAT because, at 7.5 percent, Nigeria has the lowest VAT rate in the world, not in Africa, in the world,” the finance minister said during a recent courtesy visit to the Voice of Nigeria headquarters in Abuja.
“The average African rate is 18% in Sub-Saharan Africa; if you raise your VAT, your GDP will increase.
Therefore, tax compliance has grown. Subsequently, we have likewise changed our Tank rate from five percent to 7.5, despite the fact that our objective was 10%. However, as you are aware, we are aiming for 10% by the second year in order to increase revenue.
Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, reacted by stating that the advice was coming too soon in light of the prior increase in 2020.
He stated that it was preferable to increase the burden on those already in the tax net than to increase the number of people outside the net.
He stated, “In recent years, the revenue performance from VAT has generally been excellent.” In light of the numerous difficulties that businesses are facing, I believe that it may be premature to revisit it.
The majority of VAT’s revenue comes from businesses, and the finance bill already includes proposals for excise and telecom taxes. Therefore, we must exercise caution to avoid burdening businesses further.
“It’s better to add more people to the tax net than to make it harder for those who are already there.”
Johnson Chukwu, Chief Executive Officer of Cowry Assets, asserted that the new government ought to make the decision to review the tax.
He stated, “The call is on the new government, not the current government, to decide how they want to review the taxing system.”
We must also evaluate the efficiency of tax collection rather than the amount collected. One of the signs of a decent expense framework is the simplicity of assortment, minimal expense and comfort of installment.
Although it has an effect on consumption, VAT is difficult to avoid and easy to collect. Allow the new government to establish their collection method.