The Federal Government has raked in N10.1tn from the collection of Value Added Tax under the regime of the President, Major General Muhammadu Buhari (retd.).
This comes against the backdrop of the advice by the Minister of Finance, Zainab Ahmed, that the incoming government should increase the VAT from the current 7.5 per cent to 10 per cent. VAT is a 7.5 per cent consumption tax administered by the Federal Inland Revenue Service when goods are purchased and services are rendered, and it is borne by the final consumer.
Revenue generated from VAT is usually disbursed to the three tiers of government through the Federation Accounts Allocation Committee. An analysis of reports obtained from the National Bureau of Statistics showed that the VAT earnings continued to rise annually throughout the eight-year period. The country earned N759.4bn in 2015, N777.5bn in 2016, N972.4bn in 2017 and N1.1tn in 2018. VAT collections in 2019 amounted to N1.2tn, N1.5tn in 2020, N2.1tn in 2021 while N2.5tn was paid in 2022.
The PUNCH reports that the significant increase in VAT collection in the past two years is not unconnected with the decision by the Federal Government in 2020 to increase the VAT rate from five per cent to 7.5 per cent. This was part of the tax reforms included in the 2019 Finance Act meant to help the government achieve its revenue projections. Meanwhile, economists have cautioned against raising the VAT from 7.5 per cent to 10 per cent by the incoming administration, as they argued that it would stifle the country’s economic growth.
The finance minister who made the call during a courtesy visit to the headquarters of Voice of Nigeria in Abuja recently, had said, “VAT is one of the ways to increase revenue and we still have to increase VAT because, at 7.5 per cent, Nigeria has the lowest VAT rate in the world, not in Africa, in the world. In Sub-Saharan Africa, the African average is 18 per cent, when you increase your VAT, your Gross Domestic Product will grow. So, tax compliance has increased. As a result, we have also adjusted our VAT rate from five per cent to 7.5, even though our target was 10 per cent. But you know how it is in Nigeria, we are targeting 10 per cent by the second year, we did so to increase revenue.”
Reacting to this, the Director, Centre for the Promotion of Private Enterprise, Muda Yusuf, said the advice was coming too early considering the previous increase in 2020. He said it was better to bring more people into the tax net than to impose more burden on those in the tax net.
He said, “The revenue performance from VAT has generally been excellent in recent years. My view is that it is perhaps too early to review it again, especially in light of all the challenges that businesses are facing. Businesses are the main contributors of VAT and there are some other taxes that have already been proposed under the finance bill like excise and telecom tax. So, we have to be careful so as not to increase the burden on businesses. The better thing is to bring more people into the tax net than to impose more burden on those in the tax net.”
On his part, the Chief Executive Officer, Cowry Assets, Johnson Chukwu, pointed out that the decision to review the tax should be taken by the new government.
He said, “The call is on the new government to decide how they want to review the taxing system and not on the current government to decide. We also have to look at how effective tax collection was and not about the amount received. One of the hallmarks of a good tax system is the ease of collection, low cost and convenience of payment. VAT is easiest to collect and difficult to avoid but it impacts consumption. Let us allow the new government to come and define their mode of collection.”