- Says good news for States
BY COBHAM NSA, ABUJA – President Muhammadu Buhari on Tuesday said the 2020 budget estimate of N10.33 trillion presented to the first joint session of the ninth National Assembly, is designed to enhance the Federal Government’s Social Investment Programmes (SIPs) for lasting positive impact on less-privileged Nigerians.
This even as he stoutly defended the proposed hike in Value Added Tax (VAT) rate from five per cent to 7.5 per cent as good news for States and Local government councils in the country.
The President told the lawmakers that all SIPs captured in the budget document are meant to deepen his administration’s efforts at positively impacting the lives of marginalised and most vulnerable Nigerians.
He said the 2020 Appropriation Bill is based on the proposed new VAT rate of 7.5 per cent with the expected extra revenues deployed towards funding health, education and infrastructure programmes in the country.
According to him, the decision to increase VAT by 2.5 per cent has been appropriately enunciated in a draft Finance Bill attached to the 2020 budget proposals.
The President however said it must be noted that benefits from the proposed VAT increase will largely go to the States and Local Governments that are allocated 85 per cent of all collectable VAT revenues.
Collaborating the President’s position, Director General, Budget Office of the Federation, Mr. Ben Akabueze said the planned increase would be favourable to States than the Federal Government because the VAT Act mandates that 85 per cent of VAT collected should be disbursed to sub-national governments, which are presently struggling.
He also assured the poor masses would not be adversely affected by the VAT increase, saying the fact remains that most of the people in this category have minimal engagements with goods, services and platforms where VAT are charged, particularly on luxury items.
Speaking with journalists at the 25th Nigerian Economic Summit (NES) in Abuja, Mr Akabueze, noted that the review should have taken place over nine years ago, explaining that prior to year 2010, the plan was to increase VAT rate while reducing Personal Income Tax (PIT)
He said despite criticisms from some quarters, Nigeria’s VAT regime remains one of the lowest in the world, stressing that 85 per cent of VAT collected would ordinarily be disbursed to sub-national governments, which are presently struggling due to scarce resources
“The issue of increasing the VAT rate is a matter that has been long settled, about the necessity to increase it and about the necessity to improve on taxation and to do so through consumption. About nine years ago, that was supposed to happen.
“There were two things that were supposed to happen simultaneously — an increase in the VAT rate from five to ten per cent and reduction in personal income tax. One happened, while the person who was supposed to make the other one happen chickened out”, the Director General said.
Akabueze, who provided further explanation on the VAT hike, said; “We are now facing the reality down the road, taking into account the prevailing circumstances, the increase has not gone as far as 10 per cent. The Economic Recovery and Growth Plan (ERGP) stated very clearly that the VAT rate would be raised. At 7.5 per cent, Nigeria’s VAT is still one of the lowest.”
“The issue of increasing the VAT rate is a matter that has been long settled, about the necessity to increase it and about the necessity to improve on taxation and to do so through consumption. About nine years ago, that was supposed to happen. There were two things that were supposed to happen simultaneously — an increase in the VAT rate from five to ten per cent and reduction in personal income tax. One happened, while the person who was supposed to make the other one happen chickened out.
“Another important thing to note is VAT is a consumption tax. The truth is the generality of the poor and vulnerable Nigerians that people have been shouting about that the increase would impact adversely, really have very minimal engagement with VAT. Because they hardly consume the things or engage with the platforms where VAT is chargeable.
He said; “In proposing the increase, two things had happened, the proposal include an expansion of the exemption list. The VAT Act has an Exemption list, the one that exempts certain basic commodities, food, medicine and education, but we have expanded that even to cover as much as possible, the things that the poor consumes.”