It is no longer news that the Federal Executive Council (FEC) has in a meeting presided over by President Buhari approved an increase in the Value Added Tax (VAT) payable in Nigeria from 5% to 7.5%. The purpose of this article is to make an observation as to whether the increase is necessary and in the best interest of a poor Nigerian. The discussion would also address certain rubrics that have been subjects of debate among the citizenry. They are as follows:
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- What is VAT?
- Is the VAT higher than those obtainable in other countries of the world?
- Who gets higher amount realized from VAT between federal government and state governments?
- Would Nigerians actually benefit from the 7.5% VAT increment?
WHAT VALUE ADDED TAX MEANS
VAT is simply a multistage consumption tax, which is charged and payable on the supply of all goods and services. By the provisions of section 46 of the VAT Act, the taxable persons contemplated are individuals, body corporates, and organization that buy, procure or import taxable goods and services. VAT applies on all goods and services except those specifically listed as exempt in the law. The First Schedule to Value Added Tax Act, Cap V1, LFN 2007 (as amended) (VAT) contains the list of exempted items. Goods exempted include basic food items, baby products, all exports, books and educational materials.
The importance of taxes, including VAT, cannot be over emphasized. For those who have been conversant with our budgets, they would have noticed that there are always deficit in the budgeted amount compared to the expected revenue. This means that government has been unable to make as much money as it wants to spend. Tax is one of the ways government raises money to fund the budgets. Other means are borrowings, which most of us are opposed to; oil revenue; removal of fuel subsidy etc.
It follows therefore that government needs taxes to be able to provide basic services and invest in infrastructure to create jobs and opportunities. The citizens on the other hand, need to see some level of development to convince them that paying taxes reap some collective benefits. Unfortunately, this non-tax-paying orientation is responsible for our I-don’t-give-a-damn attitude. Paying taxes confer some sense of collective ownership and create an active citizenry. Imagine paying 30 – 50 of your monthly salary on taxes, you will work to ensure you get the best services from the government. We don’t have the I-am-a-taxpayer mentality here and the unwavering expectations of service quality and availability that comes with it.
Coming back to the topic under discourse, there is indeed a need for the increase just as there is also a compelling necessity to cushion its harsh effects on the lives and general livelihood of the ordinary citizens who may wittingly or unwittingly fall victim of a new VAT regime in the country. Further discussion on that would be done shortly.
NIGERIAN VAT RATE COMPARED WITH OTHER COUNTRIES IN THE WORLD
Nigeria is among the countries that have relatively low VAT rate. Below is the list of countries of the world and the VAT rates they impose on goods and services:
Afghanistan – 10%; Algeria – 17% Angola – 10% Argentina – 21%; Australia – 10% Austria – 20%; Bangladesh – 15%; Belgium – 21%; Benin – 18%; Botswana – 12%; Burkina Faso – 18%; British Columbia – 12%; Colombia – 16%; Congo Democratic Republic – 16%; Congo Republic – 18%; Cuba – 2.5%; Cyprus – 19%; Czech Republic – 21%; Denmark – 25%; Egypt – 10%; Equatorial Guinea – 15%; Eritrea – 4%; France – 20%; Gabon – 18%; Gambia – 15%; Germany – 19%; Ghana – 15%; Guinea – 18%; Hong Kong – 0%; Indonesia – 10%; Iran – 7%; Iraq – 0%; Ireland – 23%; Israel – 18%; Italy – 22%; Ivory Coast – 18%; Jamaica – 16.5%; Japan – 8%; Kenya – 16%; Kuwait – 0%; Liberia – 7%; Libya – 0%; Madagascar – 20%; Malawi – 16.5%; Malaysia – 6%; Mali – 18%; Morocco – 20%; Mozambique – 17%; Netherlands – 21%; New Zealand – 15%; Nigeria – 5% (now 7.5%); North Korea – 15%; Norway – 25%; Pakistan – 17%; Panama – 7%; Portugal – 23%; Rwanda – 18%; Senegal – 18%; Sierra Leone – 15%; Singapore – 7%; South Africa – 14%; South Korea – 10%; Spain – 21%; Sudan – 10%. Others are:
- Sweden – 25%
- Switzerland – 8%
- Tanzania – 18%
- Togo – 18%
- Tunisia – 18%
- Turkey – 18%
- Uganda – 18%
- United Arab Emirates – 5%
- United Kingdom – 20%
- Venezuela – 12%
- Yemen – 5%
From the list above, it can be seen that with 5% VAT rate, Nigeria is one of the lowest VAT in the world. The position will not change even with the 7.5% increment. Only few countries like Cuba – 2.5%, Eritrea – 4%; Iraq – 0%; Kuwait – 0% and Libya – 0% that have VAT lower than that of Nigeria, others are higher.
WHO GETS HIGHER BETWEEN FEDERAL GOVERNMENT AND STATE GOVERNMENTS
It has been argued in some quarters that states are the largest beneficiaries of the VAT increment as the federal government has just 15% of the total amount to be realized in the VAT revenue. Is that true?
50% of the total VAT accrued is normally divided among our 36 States, 35% goes to the Local Governments, leaving the federal government with 15%. Looking at how the States manage local government funds, it is safe to assume that 85% (50% + 35%) of VAT goes to state governors.
To determine who benefits higher than the others, let’s use Engr. Ettu Mohammed’s analysis where he observes that in 2018 the federation’s Net Receipt from VAT was N1.047 trillion. Out of the figure federal government got 14.4 % which was N151 billion. The states and FCT 48% let’s assume they get equal share (though that is not the case) and was N503 billion. So each state and FCT will get N13.59 billion in 2018 (1011% more than each state). It means the FG is get 11 times from VAT than each state
The Local Governments share is 33.6 % while the Revenue generating agencies got 4% There are 774 LG’s in Nigeria 33.6% amounts to N352 billion that is N455 million per LG in 2018. That means the FG is getting 33,102 % (331 times) than each of the LG area in Nigeria.
In view of the above analysis, it is submitted that States, FCT or LGs do not get more money than the FG. Federal government is the biggest beneficiary of the VAT increment.
WHETHER NIGERIANS STAND THE CHANCE TO BENEFIT FROM THE INSTANT VAT INCREMENT
The instant VAT increase appears to be a direct reaction to the new minimum wage. The FG and most some States, do not have the money to pay the new minimum wage. When you increase the minimum wage by 67%, you expect measures such as this from the government.
Policies like this require some amount of sacrifice from the public and Nigerians have always made those sacrifices. Whether it is in the form of fuel subsidy removal, hike in electricity tariff or tax increases. Since 1999, every anti-poor decision is made with the promise that the pains are temporary and lasting gains will soon surface. Yet, those promised economic gains continue to remain elusive as each successive administration leaves power with more problems than it inherited.
Looking at how public officials mismanage the little resources around, Nigerians are not convinced that any taxes paid will not suffer the fate of other revenues, to be stolen or mismanaged by corrupt and incompetent public officials without any consequences. Just as Ahmed Musa Husaini, Esq rightly observed, a leader needs to inspire confidence in the citizenry to enable them make those sacrifices. Above all, a leader needs to fulfill his own side of the bargain side by side that of the citizenry. If Nigerians are required to cut down their consumption of foreign rice and other foreign goods in favor of local substitutes or pay higher VAT, then the government also needs to cut down some of its luxuries. In a country where the presidency still maintains a fleet of private jets, where lawmakers budget billions of naira to buy luxury cars and where tales of official profligacy travel far and wide, it is difficult to convince Nigerians that this new VAT increase and other austerity measures are not merely attempts by the government to force poor Nigerians to service the luxuries of public officials.
TheNigeriaLawyer Editorial
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