Economy
Edun confirms FG’s plans to increase VAT by 10%
The Minister of Finance, Mr. Wale Edun has confirmed plans by the Federal Government to increase the Value Added Tax (VAT) rate by 10%.
As reported by the Diaspora Digital Media, Mr. Edun revealed the information during an address to investors at the IMF/World Bank annual meeting currently going on in Washington, D.C.
Earlier in September, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr Taiwo Oyedele announced that the committee plans to propose legislation to the National Assembly to raise the VAT from its current rate of 7.5% to 10%.
According to Oyedele, the proposed increase aims to address significant issues in Nigeria’s tax revenue and it is part of a broader revenue transformation strategy.
The committee’s proposal also includes subsequent increases, with a target of 15% by 2030, as part of a progressive tax plan designed to minimize the impact on lower income individuals.
The bill was formally submitted to the National Assembly for examination and potential enactment by President Bola Tinubu.
The minister stated, “ the proposed increase, presently before the National Assembly, will be implemented progressively primarily targeting luxury goods.”
While giving explanation on how the policy will work, Edun clarified that the VAT hike will primarily affect luxury items, while essential goods consumed by low-income and vulnerable Nigerians will remain VAT-exempted or zero-rated.”
He assured that the comprehensive list of essential goods exempted will be disclosed to the public in a timely manner.
He said, “Tinubu has pledged to safeguard the interests of the most disadvantaged and vulnerable populations while executing vital VAT reforms.
The Minister emphasized that the proposed bills currently before the National Assembly aim to redistribute the tax burden.
Value Added Tax (VAT)
Value Added Tax (VAT) is a consumption tax that is levied on the value added at each stage of a product’s production and distribution.
It is similar to sales tax, but with a key difference. VAT is an indirect tax, meaning the consumer ultimately bears the burden, but it’s paid by the businesses involved in the production process.
Key Features of VAT
It is invoice based or accounts based. VAT can be calculated using invoices or accounts.
It does not apply to zero rated goods.Certain goods and services are exempted from VAT.
Businesses can claim back VAT on purchases if they’re not reselling the goods.
VAT is destination based. It is typically based on the location of the consumer.
Benefits and Limitations
The tax encourages business registration. Businesses register to claim back VAT on purchases.
It is difficult to evade. VAT is harder to evade than other taxes.
Besides, it generates significant revenue for governments.
Countries Using VAT
As of June 2023, 175 of the 193 UN member countries use VAT, including all OECD members except the United States.
VAT in Nigeria
The VAT rate in Nigeria is 7.5%, but there are zero-rated and exempt items that don’t attract this rate.
In Nigeria, some goods and services are exempted from VAT. These include medical and pharmaceutical products, basic food items, and educational books and materials.
Also, Nigeria exempts baby products, fertilizers, locally-produced agricultural chemicals, and veterinary medicine, medical services, and services rendered by Unit Microfinance Banks and mortgage institutions.
Small Businesses and VAT
Small businesses with an annual turnover of below ₦25 million are exempt from accounting for VAT.
However, they can voluntarily register, charge, collect, remit the tax, and file monthly returns to the Federal Inland Revenue Service (FIRS).
Registration and Filing
VAT registration is required immediately upon commencement of business operations.
The FIRS is the sole agency for administering the tax in Nigeria.
Taxpayers must file VAT returns electronically on the TaxPro Max portal, and the deadline is the 21st day of the month following the transaction.
Penalties
Late filing of monthly returns attracts a penalty of ₦50,000 in the first month and ₦25,000 in subsequent months.
Non-registration and non-remittance of VAT also attract penalties.
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