Nigeria’s Finance Minister Makes Case For 100% VAT Increase

Onyedimmakachukwu Business, Finance/Money

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VENTURES AFRICA – Nigeria’s finance minister has hinted that the government plans to raise the country’s Value Added Tax (VAT) from 5 to 10 percent. Okonjo-Iweala, who is also the country’s Coordinating Minster of the Economy, said that in the medium term, the tax policy would be reviewed, which could see the VAT doubled.

“A 5 percent increase in VAT rate for instance, would yield N614 billion, most of which would go to the states and local governments,” Okonjo-Iweala said at the presentation of the 2015 budget yesterday.

This is not the first time the Nigerian government has moved to increase VAT; last year, a proposal to raise VAT to 10 percent was met with stiff opposition by the public and criticism by some analysts. This is because VAT is tax paid by the buyer of goods and services. And an increment of the tax will directly lead to a rise in the purchase price of such commodities.

Last year, an official of the West African Union of Tax Institutes, Chuckwuemeka Eze, told the News Agency of Nigeria that although Nigeria had the
lowest VAT rate in West Africa, it also allows a multiple tax system unlike other countries, especially in West Africa. “Nigerians pay levies which are much higher than the normal taxes those in other ECOWAS communities pay. We pay levies, charges, rates and fees. All these are taxes”.
Eze also points to the harm an increase in VAT could have on the flow of investments as well as small and medium enterprises (SMEs). He advocated that the Nigerian government has to reduce the Company Income Tax from 30 to 20 percent if it must increase VAT (to 10 percent). “If government increases VAT without reducing the company income tax, it will discourage investment and create more challenges for small and medium enterprises that drive the economy,” he said.

However, Okonjo Iweala says Nigeria already has one of the lowest VATS in the world, and that the government has economic strategies to protect the masses from the fall in oil revenue. The minister said these would go a long way to support the economy and provide Nigeria a responsible pathway to overcoming the limitations of falling oil revenues without disproportionately affecting the poor-to-middle class.

Among the strategies is the tax on luxury items,

The finance minister disclosed that the government hopes to raise N10.56 billion additional revenue from levies on luxury items in 2015. These include a 10 percent import surcharge new private jets expected to yield about N3.7 billion in revenue, a 39 percent import charge on luxury yachts to raise N1.6 billion in 2015, and a 5 percent import surcharge on luxury cars that would rake in N2.6 billion.

The luxury tax will also be imposed on business and first class airline tickets, as well champagne, wines and spirits, are also among the items to to generate about N2.3 billion in 2015. The federal capital also gets a one percent FCT Mansion Tax on residential properties with value of N300 million and above, which should yield additional N360 million.
a review of tax waivers and exemptions,
Okonjo-Iweala further disclosed that the government will also review Tax Waivers and exemptions in the bid to ramp up revenue. She stated that about 30 percent of those that received tax waivers from government, especially under the pioneer status scheme, now abuse the system. She revealed that the Government has already commenced a review of the implementation of pioneer status exemptions to some oil companies which could unlock up to N36 billion of additional tax revenues in 2015.
She also hinted that in 2015, the government would be ramping up the FIRS/McKinsey initiative to hopefully contribute an extra N160 billion in tax receipts and an aggregate of about N460 billion over and above the 2014 levels in the 2015-2017 period.
and proposed spending cuts…
The finance minister said the measures been put in place by the government will check spending and save a total of N82.5 billion. The 2015 budget contains proposed cuts to International Travels and Training by 50 percent for all MDAs, saving about N14 billion, while other provisions for overhead expenditure have been dropped completely – saving about N4 billion. There were also funding cuts for the procurement and upgrade of buildings, saving about N44 billion, while another N76 billion is proposed for reallocation to programmes deemed to have for impact.
Okonjo-Iweala however, noted that that the medium term measures require greater efforts and legislative support to cut the cost of governance across all tiers and branches of government. She revealed that a list of such laws will be submitted to the National Assembly for consideration by the second quarter of 2015. Meanwhile, she added that government projects a N450 billion raise from Internally Generated Revenue (IGR) receipts in 2015.