Nigerian government insists VAT increase will help struggling states


The Federal Government on Tuesday defended its decision to increase Value Added Tax (VAT) from five percent to 7.5 percent, saying the review should have been done nine years ago.

Addressing journalists at the end of the 25th Nigerian Economic Summit in Abuja, the Director-General of the Budget Office, Mr. Ben Akabueze, said prior to 2010, the plan was to effect an increase in the VAT rate and a reduction in Personal Income Tax.

He said the personal income tax was increased by the government in office at that time, while it failed to effect an increase in VAT.

He insisted that Nigeria’s VAT rate was one of the lowest in the world, saying the poor would not be affected by the increase as most of them have minimal engagements with goods, services, and platforms where VAT is charged.

He said the Federal Government had expanded the VAT exemption list and would ensure that only businesses with a turnover of N25 million and above charge VAT, thereby.

Akabueze also declared that the planned increase would not be favourable to the federal government but to the states, as the VAT Act mandates that 85 percent of VAT collected should be disbursed to sub-national governments, which according to him, are presently struggling.

He said: “The issue of increasing the VAT rate is a matter that has been long settled, about the necessity to increase it and about the necessity to improve on taxation and to do so through consumption. About nine years ago, that was supposed to happen. There were two things that were supposed to happen simultaneously — an increase in the VAT rate from five to 10 percent and a reduction in personal income tax. One happened, while the person who was supposed to make the other one happen chickened out.

“We now face down the road, taking into account the prevailing circumstances, the increase has not gone as far as 10 percent. The Economic Recovery and Growth Plan (ERGP)  stated very clearly that the VAT rate would be raised. At 7.5 percent, Nigeria’s VAT is still one of the lowest in the world.”



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