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| Credit – Google |
The Federal
Government is set to increase Value Added Tax from its current rate of 5% on
goods and services to 10%. It was disclosed on Friday 7th of August
2015 by Mr. Sunday Ogungbesan, Acting Chairman, Federal Inland Revenue Service
(FIRS), while speaking with the media.
Government is set to increase Value Added Tax from its current rate of 5% on
goods and services to 10%. It was disclosed on Friday 7th of August
2015 by Mr. Sunday Ogungbesan, Acting Chairman, Federal Inland Revenue Service
(FIRS), while speaking with the media.
According to him,
increasing the VAT was one of the measures being considered by the Federal
Government to shore up the revenue of the country that had suffered a slide
since the slump in crude oil price started last year. Nigeria earns about 80
per cent of its revenue from oil exports.
increasing the VAT was one of the measures being considered by the Federal
Government to shore up the revenue of the country that had suffered a slide
since the slump in crude oil price started last year. Nigeria earns about 80
per cent of its revenue from oil exports.
If you are a fellow
in the Chartered Institute of Taxation or you have a degree in Finance, you can
skip this article. The purpose of it is to try to explain the effect of the
proposed increment of VAT on Nigerians and Nigerian businesses.
in the Chartered Institute of Taxation or you have a degree in Finance, you can
skip this article. The purpose of it is to try to explain the effect of the
proposed increment of VAT on Nigerians and Nigerian businesses.
What
is VAT
is VAT
First thing to know
is what VAT really means? Who imposes and who suffers it?
is what VAT really means? Who imposes and who suffers it?
What is exempted from
Tax?
Tax?
VAT is a consumption
tax payable on the goods and service consumed by any person, whether government
agencies, business organizations or individuals. The target of VAT is
consumption of goods and services and unless an item is specifically exempted
by law, the consumer is liable to the tax. It can also be defined as a tax on
spending/consumption levied at every stage of a transaction but eventually
borne by the final consumer of such goods and services. It is levied at the
rate of 5%.
tax payable on the goods and service consumed by any person, whether government
agencies, business organizations or individuals. The target of VAT is
consumption of goods and services and unless an item is specifically exempted
by law, the consumer is liable to the tax. It can also be defined as a tax on
spending/consumption levied at every stage of a transaction but eventually
borne by the final consumer of such goods and services. It is levied at the
rate of 5%.
In Nigeria, the VAT
system started with acceptance of the recommendation of a study group on
indirect taxation in November, 1991. The decision to accept the recommendation
was made public in the 1992 budget speech of the Head of State. This resulted
in setting up the Modified Value-Added Tax (MVAT) committee as recommended by the
study group. Tax administration was however given to federal Inland Revenue
Services (FIRS).
system started with acceptance of the recommendation of a study group on
indirect taxation in November, 1991. The decision to accept the recommendation
was made public in the 1992 budget speech of the Head of State. This resulted
in setting up the Modified Value-Added Tax (MVAT) committee as recommended by the
study group. Tax administration was however given to federal Inland Revenue
Services (FIRS).
Value-Added Tax is
tax on the supply of good and services which is eventually born by the final
consumer but all collected at each stage of production and distribution chain.
With VAT, government reasoned, it will be virtually impossible to evade tax.
tax on the supply of good and services which is eventually born by the final
consumer but all collected at each stage of production and distribution chain.
With VAT, government reasoned, it will be virtually impossible to evade tax.
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| Credit – Google |
Items
exempted from VAT
exempted from VAT
VAT exempts essential
goods such as all medical and pharmaceutical product basic food, books and
educational material, newspapers and magazines, baby products, fertilizer
agricultural and veterinary medicine, farming transportation equipment. While,
services exempted include medical services, services rendered by community
bank’s, people’s bank and mortgage institution as part of learning. All
diplomatic items are exempted as covered by international agreements and
airline tickets for international travel. You practically pay tax on every
other thing that does not fall in this category.
goods such as all medical and pharmaceutical product basic food, books and
educational material, newspapers and magazines, baby products, fertilizer
agricultural and veterinary medicine, farming transportation equipment. While,
services exempted include medical services, services rendered by community
bank’s, people’s bank and mortgage institution as part of learning. All
diplomatic items are exempted as covered by international agreements and
airline tickets for international travel. You practically pay tax on every
other thing that does not fall in this category.
VAT
from 5% to 10%
from 5% to 10%
The proposed increase
will be very unfair to the Nigerian populace if it is based on the fact that
the rate of vat which is 5% as stipulated in section 4 of the Vat Act 1993 is
one of the lowest rates in the world, as claimed by the FIRS acting boss.
will be very unfair to the Nigerian populace if it is based on the fact that
the rate of vat which is 5% as stipulated in section 4 of the Vat Act 1993 is
one of the lowest rates in the world, as claimed by the FIRS acting boss.
Studies have shown
that other countries with higher rates have got a lot to show for it, in terms
of good infrastructural facilities and social amenities in the country that is
adequately sufficient and highly beneficial to citizens.
that other countries with higher rates have got a lot to show for it, in terms
of good infrastructural facilities and social amenities in the country that is
adequately sufficient and highly beneficial to citizens.
This is seen to be a
severe austerity measure on the masses in the long run, considering the fact
that every individual in the country has to consume goods and services that are
vatable in other to survive, since it is charged on almost all consumable
products.
severe austerity measure on the masses in the long run, considering the fact
that every individual in the country has to consume goods and services that are
vatable in other to survive, since it is charged on almost all consumable
products.
Increase
of the VAT rate will cause;
of the VAT rate will cause;
• Death of startup
companies
companies
Increase in VAT rate
will make operating expenses consume a huge part of their revenue, and they are
left with the option of providing for themselves what is meant to be provided
by the government for them to continue in business. It is pertinent to note
that a manufacturer battling with little or no profit, will find it unbearable
paying the increased tax on their minimum profit.
will make operating expenses consume a huge part of their revenue, and they are
left with the option of providing for themselves what is meant to be provided
by the government for them to continue in business. It is pertinent to note
that a manufacturer battling with little or no profit, will find it unbearable
paying the increased tax on their minimum profit.
• Increase in
Inflation rate
Inflation rate
Manufacturers, who
are opportunists, will take advantage of the increase in vat rate, to shoot up
their prices. Government wants to get a part of the insufficient income left
with the citizens, who are left with the only option to spend majorly on
necessities. There is always an adverse effect on the economy.
are opportunists, will take advantage of the increase in vat rate, to shoot up
their prices. Government wants to get a part of the insufficient income left
with the citizens, who are left with the only option to spend majorly on
necessities. There is always an adverse effect on the economy.
Other possible disadvantages
of the implementation is regressive effect on low income earners leading to
poor savings, intractable increase price level (even beer, suya and sharwama
sellers will increase prices like a loose cannon) and practical difficulties of
implementing the VAT rate.
of the implementation is regressive effect on low income earners leading to
poor savings, intractable increase price level (even beer, suya and sharwama
sellers will increase prices like a loose cannon) and practical difficulties of
implementing the VAT rate.
In conclusion, it is
therefore advisable that the legislature and other critical stakeholders should
frown at this heartbreaking revenue generation policy government is about to embark on (in the interest of the people).
therefore advisable that the legislature and other critical stakeholders should
frown at this heartbreaking revenue generation policy government is about to embark on (in the interest of the people).
By: Sogo Akinola
Sogo Akinola Nathan is
a young commercial lawyer at GbengaBiobaku and co. He specializes in Taxation,
oil and gas law and Real Estate. He is a graduate of ObafemiAwolowo University
and the Nigerian Law School. He is a member of the Nigerian Bar Association and
a member of the Association of Young International lawyers and Young International Arbitration Group and also
an intending associate member of the Chartered Institute of Taxation of Nigeria