Here’s What The Increase In VAT Could Mean For Nigerians…

Every Nigerian has come across the news that the president of the federal republic, Muhammad Burhari, has approved a bill which increases the Value Added Tax (VAT). Law makers claim that this was solidified in an attempt to improve the economy of the country and after signing the bill earlier this week, the president buttressed their point with a tweet. He said through his official Twitter account, that the bill was created to help the implementation of the 2020 budget and to build a conducive environment for the growth of businesses in Nigeria. However, Nigerians are not pleased with this decision as the announcement was met with criticism and anguish.

Some of the notable modifications that the Act will implement include;

1. The increase of the VAT by 50% – from 5% to 7.5%;
2. The introduction of a N25 million VAT compliance threshold;
3. The exemption of companies that generates less than N25 million annual turnover from payment of CIT.
4. The extension in the nature of companies which are taxable in Nigeria. Companies that operate within the digital space are now liable.
5. A prerequisite to submit a Tax Identification Number (TIN) for creation of bank accounts or to continue operation of an existing bank account.
6. The provision of exceptions for the requisition of excess dividend tax under Section 19 of the CIT Act; and the imposition of excise on certain imported products.

This is not the first attempt by the government to push for an increment, in a bid to raise more revenue. The government tried to increase tax in 2007 but the negative reactions from the public led it suspension. It was again reviewed on 11th of September 2019 and agreed to, by the Federal Executive Council that there should be a 44% hike. Hence, increasing the country’s economic funds and also affecting the standard of living.

Every year for the last six years, the Nigerian government has garnered an average of N900 billion through VAT collection. This mean that VAT will generate N1.3trillion on the average for the country annually. The money will be distributed amongst the three tiers of government with the sole purpose of developing of each state. 50% of the revenue will be given to the state government, Local government areas receive 35% percent, and the federal government,15%.

The Nigerian government has said that even with increment, our tax is one of the lowest in the continent. Here’s what the increment could mean for Nigerians;

The increase will affect the prices of goods and services in Nigeria. Hence, leading to a higher standard of living in Nigeria. This will result to a rise Nigeria’s inflation rate.

Unfortunately, this bill will not increase the salary of the working class citizens. However, it will limited funds which will reduce people’s ability to purchase things. It will affect the purchasing capacity of Nigerians and reduce the items we buy as people will opt to buy items that are truly important.

If managed effectively, the increment of VAT will provide the government with the funds to create vital infrastructure and build better economic structures.