The Propriety Or Otherwise Of 7.5% VAT Increment In Contemporary Nigeria

It is no longer news that the Federal Executive Council (FEC)
has in a meeting presided over by President Buhari approved an
increase in the Value Added Tax (VAT) payable in Nigeria from 5% to
7.5%. The purpose of this article is to make an observation as to
whether the increase is necessary and in the best interest of a
poor Nigerian. The discussion would also address certain rubrics
that have been subjects of debate among the citizenry. They are as
follows:

• What is VAT?
• Is the VAT higher than those obtainable in other countries of
  the world?
• Who gets higher amount realized from VAT between federal
  government and state governments?
• Would Nigerians actually benefit from the 7.5% VAT
  increment?

WHAT VALUE ADDED TAX MEANS

VAT is simply a multistage consumption tax, which is charged and
payable on the supply of all goods and services. By the provisions
of section 46 of the VAT Act, the taxable persons contemplated are
individuals, body corporates, and organization that buy, procure or
import taxable goods and services. VAT applies on all goods and
services except those specifically listed as exempt in the law. The
First Schedule to Value Added Tax Act, Cap V1, LFN 2007 (as
amended) (VAT) contains the list of exempted items. Goods exempted
include basic food items, baby products, all exports, books and
educational materials.

The importance of taxes, including VAT, cannot be over
emphasized. For those who have been conversant with our budgets,
they would have noticed that there are always deficit in the
budgeted amount compared to the expected revenue. This means that
government has been unable to make as much money as it wants to
spend. Tax is one of the ways government raises money to fund the
budgets. Other means are borrowings, which most of us are opposed
to; oil revenue; removal of fuel subsidy etc.

It follows therefore that government needs taxes to be able to
provide basic services and invest in infrastructure to create jobs
and opportunities. The citizens on the other hand, need to see some
level of development to convince them that paying taxes reap some
collective benefits. Unfortunately, this non-tax-paying orientation
is responsible for our I-don’t-give-a-damn attitude. Paying taxes
confer some sense of collective ownership and create an active
citizenry. Imagine paying 30 – 50 of your monthly salary on taxes,
you will work to ensure you get the best services from the
government. We don’t have the I-am-a-taxpayer mentality here and
the unwavering expectations of service quality and availability
that comes with it.

Coming back to the topic under discourse, there is indeed a need
for the increase just as there is also a compelling necessity to
cushion its harsh effects on the lives and general livelihood of
the ordinary citizens who may wittingly or unwittingly fall victim
of a new VAT regime in the country. Further discussion on that
would be done shortly.

NIGERIAN VAT RATE COMPARED WITH OTHER COUNTRIES IN THE
WORLD

Nigeria is among the countries that have relatively low VAT
rate. Below is the list of countries of the world and the VAT rates
they impose on goods and services:

Afghanistan – 10%; Algeria – 17% Angola – 10% Argentina – 21%;
Australia – 10% Austria – 20%; Bangladesh – 15%; Belgium – 21%;
Benin – 18%; Botswana – 12%; Burkina Faso – 18%; British Columbia –
12%; Colombia – 16%; Congo Democratic Republic – 16%; Congo
Republic – 18%; Cuba – 2.5%; Cyprus – 19%; Czech Republic – 21%;
Denmark – 25%; Egypt – 10%; Equatorial Guinea – 15%; Eritrea – 4%;
France – 20%; Gabon – 18%; Gambia – 15%; Germany – 19%; Ghana –
15%; Guinea – 18%; Hong Kong – 0%; Indonesia – 10%; Iran – 7%; Iraq
– 0%; Ireland – 23%; Israel – 18%; Italy – 22%; Ivory Coast – 18%;
Jamaica – 16.5%; Japan – 8%; Kenya – 16%; Kuwait – 0%; Liberia –
7%; Libya – 0%; Madagascar – 20%; Malawi – 16.5%; Malaysia – 6%;
Mali – 18%; Morocco – 20%; Mozambique – 17%; Netherlands – 21%; New
Zealand – 15%; Nigeria – 5% (now 7.5%); North Korea – 15%; Norway –
25%; Pakistan – 17%; Panama – 7%; Portugal – 23%; Rwanda – 18%;
Senegal – 18%; Sierra Leone – 15%; Singapore – 7%; South Africa –
14%; South Korea – 10%; Spain – 21%; Sudan – 10%. Others are:

• Sweden – 25%
• Switzerland – 8%
• Tanzania – 18%
• Togo – 18%
• Tunisia – 18%
• Turkey – 18%
• Uganda – 18%
• United Arab Emirates – 5%
• United Kingdom – 20%
• Venezuela – 12%
• Yemen – 5%

From the list above, it can be seen that with 5% VAT rate,
Nigeria is one of the lowest VAT in the world. The position will
not change even with the 7.5% increment. Only few countries like
Cuba – 2.5%, Eritrea – 4%; Iraq – 0%; Kuwait – 0% and Libya – 0%
that have VAT lower than that of Nigeria, others are higher.

WHO GETS HIGHER BETWEEN FEDERAL GOVERNMENT AND STATE
GOVERNMENTS

It has been argued in some quarters that states are the largest
beneficiaries of the VAT increment as the federal government has
just 15% of the total amount to be realized in the VAT revenue. Is
that true?

50% of the total VAT accrued is normally divided among our 36
States, 35% goes to the Local Governments, leaving the federal
government with 15%. Looking at how the States manage local
government funds, it is safe to assume that 85% (50% + 35%) of VAT
goes to state governors.

To determine who benefits higher than the others, let’s use
Engr. Ettu Mohammed’s analysis where he observes that in 2018 the
federation’s Net Receipt from VAT was N1.047 trillion. Out of the
figure federal government got 14.4 % which was N151 billion. The
states and FCT 48% let’s assume they get equal share (though that
is not the case) and was N503 billion. So each state and FCT will
get N13.59 billion in 2018 (1011% more than each state). It means
the FG is get 11 times from VAT than each state

The Local Governments share is 33.6 % while the Revenue
generating agencies got 4% There are 774 LG’s in Nigeria 33.6%
amounts to N352 billion that is N455 million per LG in 2018. That
means the FG is getting 33,102 % (331 times) than each of the LG
area in Nigeria.

In view of the above analysis, it is submitted that States, FCT
or LGs do not get more money than the FG. Federal government is the
biggest beneficiary of the VAT increment.

WHETHER NIGERIANS STAND THE CHANCE TO BENEFIT FROM THE
INSTANT VAT INCREMENT

The instant VAT increase appears to be a direct reaction to the
new minimum wage. The FG and most some States, do not have the
money to pay the new minimum wage. When you increase the minimum
wage by 67%, you expect measures such as this from the
government.

Policies like this require some amount of sacrifice from the
public and Nigerians have always made those sacrifices. Whether it
is in the form of fuel subsidy removal, hike in electricity tariff
or tax increases. Since 1999, every anti-poor decision is made with
the promise that the pains are temporary and lasting gains will
soon surface. Yet, those promised economic gains continue to remain
elusive as each successive administration leaves power with more
problems than it inherited.

Looking at how public officials mismanage the little resources
around, Nigerians are not convinced that any taxes paid will not
suffer the fate of other revenues, to be stolen or mismanaged by
corrupt and incompetent public officials without any consequences.
Just as Ahmed Musa Husaini, Esq rightly observed, a leader needs to
inspire confidence in the citizenry to enable them make those
sacrifices. Above all, a leader needs to fulfill his own side of
the bargain side by side that of the citizenry. If Nigerians are
required to cut down their consumption of foreign rice and other
foreign goods in favor of local substitutes or pay higher VAT, then
the government also needs to cut down some of its luxuries. In a
country where the presidency still maintains a fleet of private
jets, where lawmakers budget billions of naira to buy luxury cars
and where tales of official profligacy travel far and wide, it is
difficult to convince Nigerians that this new VAT increase and
other austerity measures are not merely attempts by the government
to force poor Nigerians to service the luxuries of public
officials.

Nairalaw Editorial

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