Why 7.2% VAT is necessary, by FG

The Federal Government has defended its decision to increase Value Added Tax (VAT) from 5 to 7.2 percent.

There have been loud cries from many quarters kicking against the planned VAT increase based on the recommendation of the Presidential technical advisory committee.

But a statement from the Federal Ministry of Finance signed by Yunusa Tanko Abdullahi SA Media and Communication to the Finance Minister maintained the increase was justified.

The nation’s VAT rate, it said “will still be at about half the African average and amongst the lowest in the world, thus sub national governments get 85%.”

The benefit of an increase in VAT, it added is that it will be “more beneficial to state governments and Local Government Areas(LGAs) in the country, many of which are already facing difficult conditions. The proposed increase in VAT is therefore expected to create additional fiscal space.

“The proposed increase is however subject to legislative intervention by the National Assembly who will have to amend the revenue Act to reflect the proposed increase,” he said.

The existing VAT Act exempts the basic necessities such as food, medicines and education which therefore minimises the impact on the poor and vulnerable segments of the Nigerian society from the burden thereof. It is expected that the exemptions will be maintained in the amended Act.

Yunusa Tanko Abdullahi noted that “the VAT increase, if correctly implemented, could bring in huge revenues, which would actually reduce the fiscal deficit burden.”

“The government’s borrowing programme could then ease and certainly the financially affected states and local governments could later focus on issues like poverty reduction, healthcare and power generation and transmission” he explained.

Yunusa Tanko Abdullahi quoted industry experts, who he said have agreed that “VAT increase, if enforced properly, forms part of the fiscal consolidation strategy for the country. It could, in fact, help address the fiscal deficit problem and the revenues estimated to be collected could actually mean lowering of the fiscal deficit burden for the government across board.”