FG Replies IMF, Says No Plan To Raise VAT
Despite suggestions from the International Monetary Fund for the Federal Government to increase its Value Added Tax to ten per cent by 2022 and 15 per cent by 2025, the Federal Government has said that it has no intention to effect such changes anytime soon, following the hardship faced in the country.
The Minister of Finance Budget and National Planning, Zainab Ahmed, made the disclosure on Thursday during the virtual Nigerian Economic Outlook for 2021, organised by Deloitte.
Ahmed said, “What we have been trying to do is the incremental changes. You know the nature of the Nigerian economy. If you do too many changes at a time, then it means you designed it to fail.
“So, I wish we could have in 2021 also done another round of changes or improvement on the VAT. We had to step back because we made a general commitment that we will not increase any taxes. So, we didn’t want to take any measure that will be interpreted to mean that we are increasing our VAT.
“But we do have to improve on this VAT regime that we are currently improving and when I say improving, it doesn’t mean increasing. When taxpayers are able to recover VAT monthly stream; the increase to a higher rate will be more accepted.”
The response comes few days after the International Monetary Fund advised that Nigeria may need to increase VAT rate to boost its revenue when the economy fully recovers from the Covid-19 pandemic induced recession.
The Federal Government had increased VAT from five per cent to 7.5 per cent, representing a 50 per cent hike in the 2019 Finance Act, which took effect February 1, 2020.
The government maintained the 7.5 per cent rate in the 2020 Finance Act.
Nigeria’s VAT is the lowest compared to the other two biggest economies in the continent, with South Africa and Egypt holding VAT rates at 15 per cent and 14 per cent respectively.
The IMF had said, “Once economic recovery takes root, Nigeria will need to increase the value-added tax rate to at least 10 percent by 2022 and 15 percent by 2025—the average in countries belonging to the Economic Community of West African States—to create effective fiscal space.”
In the fresh call, the IMF said it was imperative for the country to revisit its tax exemptions and duty waivers to boost revenues outside oil.
Nigeria’s new Finance Act 2020 made several adjustments to taxes specifically reducing taxes for low income earners and a provision for duty and levy waivers to imported vehicles that would help in tackling high inflation rate.
The FG had identified such products to be tractors, imported cars and aircraft engines among others.
The minister said the government was open to suggestions on how to improve on the new legislation, but insisted that there was specific instruction from President Muhammadu Buhari not to add additional tax burden on Nigerians.