A widespread report indicating an impending increase in the Value-added Tax (VAT) from 7.5 percent to 10 percent has been refuted by the federal government. In a statement released on the 9th of September, Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, emphatically refuted these allegations and stated that the present rate of 7.5 percent remained the same. According to Edun, the government charges the current rate on a range of products and services that are subject to the tax.
He emphasized that the Federal Government and its agencies will not violate established legal provisions. The Minister described the tax system’s structure as resting on a “tripod” consisting of laws, policies, and bureaucracy. He emphasized that, contrary to what some publications claim, the administration is focused on utilizing fiscal policy to encourage sustainable Economic Growth and combat Poverty rather than causing hardship for Nigerians. Furthermore, Edun highlighted that the federal government recently halted import taxes, tariffs, and charges on necessities like rice, wheat, and beans in an effort to ease the financial strain on individuals and businesses.
Rate increase in 2020 affected consumers and businesses.
The Value-Added Tax rate was last officially increased in February 2020, when it went from 5% to 7.5 % in accordance with the Nigerian government’s Finance Act 2019, which seeks to increase income generation to fund Economic Development and government spending. The majority of products and services provided in Nigeria, including imported commodities, are subject to VAT. To lessen the tax burden on necessities, several products—such as basic food items, pharmaceutical and medical supplies, and educational materials—are excluded from the tax.
Also, VAT registration and collection are not applicable to small firms with an annual Revenue of less than ₦25 million. The 2020 increase affected consumers and businesses in a number of ways. Consumers’ discretionary income has been impacted by the increase in the cost of VAT-able products and services, particularly for those with low and moderate incomes. Businesses adopted cautious accounting procedures in order to guarantee that tax regulations are followed and that returns are filed correctly in light of the hike. Furthermore, maintaining compliance with tax has a large administrative cost, especially for small and medium-sized enterprises (SMEs).
Revenues have risen since the rate was increased.
It is worth mentioning that VAT and other forms of taxes have emerged as one of the main non-oil sources of revenue for the Nigerian government, more notable under President Bola Tinubu’s administration. Value-Added Tax revenues have climbed dramatically since the rate was raised, which has helped to offset revenue shortages brought on by falling oil prices. According to data from the Nigeria Bureau of Statistics, VAT increased from prior years to produce around ₦1.8 trillion in 2022. Value Added Tax for Q1 2024 was reported to have totaled ₦1.43 trillion. This represents a growth rate of 19.21% on a quarter-over-quarter basis from ₦1.20 trillion in Q4 2023.
In the first quarter of 2024, recorded local payments totaled ₦663.18 billion, foreign VAT payments were ₦435.73 billion, and import VAT contributed ₦332.01 billion. Quarter-over-quarter, the activities related to accommodation and food service had the largest growth rate (59.15%), followed by those related to administration and support (47.79%). Conversely, the lowest growth rate was recorded by Extraterritorial Organizations and Bodies Activities (-57.01%), trailed by Human Health and Social Work Activities (-27.73%).
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When it comes to the sector’s contribution in the quarter under review, Manufacturing leads by 26.72%, following behind is Information and Communication with 17.42%, and Mining & Quarrying activities with 15.42%. However, the least amount—0.01%—was recorded by household activities as employers and undifferentiated goods- and services-producing activities for personal use. These were followed by activities of extraterritorial organizations and bodies (0.03%) and water supply, sewerage, waste management, and remediation activities (0.05%). On the other hand, year over year, VAT generated in Q1 2024 rose by 101.65% over Q1 2023.