The Presidential Committee on Fiscal Policy and Tax Reforms has suggested to the Federal Government the need for an upward review of the 7.5% value-added tax (VAT) rate.
According to the Punch, the chairman of the committee, Taiwo Oyedele, made the disclosure while speaking at a stakeholder’s exposure and impact assessment session organized to discuss some of the major proposals in the National Tax Policy in Abuja.
According to Oyedele, the committee has proposed reviewing state and local governments’ share of VAT revenue to 90 per cent from the 85% they currently take.
According to section 40 of the VAT Act, the federal government gets 15 per cent of the tax revenue, states share 50 per cent, and local governments share the balance of 35 per cent.
However, Oyedele said the committee is recommending reducing the federal government’s share from 15 per cent to 10 per cent
“We are proposing that the federal government’s portion should be reduced from 15 per cent to 10 per cent. States’ portion will be increased but they would share 90 per cent with local governments,” he said.
Oyedele said the committee proposed adjusting the sharing formula for VAT because it is a tax of the states.
“In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 per cent as cost of collection and that is the 15 per cent charged today came about. But we think it is too much,” he said.
The tax expert added that the burden of VAT should be on the ultimate consumer.
“The burden of Value Added Tax should be with the ultimate consumer. So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing. Nigeria’s economy is more than 50 per cent in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50 per cent and it won’t even fly.
So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services and accommodation will carry zero per cent VAT. So for the poor and small businesses, no VAT.
Then for the rest of us, we will pay a little bit more. We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the Mathematic with the private sector,” he said.
