As the controversy surrounding the increase of Value Added Tax (VAT) intensities, Director General of Budget Office, Mr. Ben Akabueze yesterday said that only businesses with a turnover of N25 million will pay VAT.
Speaking during a briefing to mark the closing of the Nigerian Economic Summit, in Abuja, Akabueze said that the increase had no direct impact on the poor.
“Technically speaking, even the woman by the roadside is supposed to be charged VAT. But this new proposal actually establishes a threshold since it applies to only businesses with a turnover of N25 million will be charged vat” he said, adding that the federal government did not increase VAT to benefit itself alone because the VAT Act says that 85 percent goes to the subnational government.
“The final comment I want to make is that the VAT act says that 85 per dent goes to the subnational government.
The Federal Government is not increasing the VAT rate to feather its own nest. It is one economy. The reality is that the subnational government benefits more.
So, I hope this will help shape some of the conversions around the VAT.
The DG Budget also noted that from the time Economic Recovery and Growth Plan (ERGP) was introduced the VAT rate was based on 7.5 percent.
“The ERGP states clearly that the VAT rate will be based on 7.5 percent.
At 7.5 percent Nigeria’s VAT rate is still one of the lowest in the world.
On the African continent, at 7.5 percent we still have about half of the average VAT rate. And yet some people have lowered their VAT rate in recent times. Even their reduced rate is still about 7.5 percent.
The very important thing to note, VAT is a consumption tax and the truth is that the generality of the poor Nigerians have very minimal engagement with VAT because they hardly consume the things or engage with the platforms where VAT is chargeable. In proposing the increase, two things happened. The proposal includes an expansion of the exemption list. The VAT Act has an exemption list. The one to exempt basic commodities, food, medicines, education. We expanded that to try and cover as much as possible the things the poor consume.
The existing VAT act has no threshold for applicability.
Technically speaking even the woman by the roadside is supposed to be charged VAT. But this new proposal actually establishes a threshold since it applies to only businesses with a turnover of N25 million will be charged VAT.