More hardship looms as the Presidential Committee on Fiscal Policy and Tax Reforms has said there is a need to increase the value-added tax (VAT) rate.
Taiwo Oyedele, chairman of the committee, spoke on Monday while disclosing the VAT revenue-sharing formula would be reviewed.
He spoke at a policy exposure and impact assessment session organised by the committee.
Nigeria’s VAT rate is currently 7.5 percent.
Oyedele also said the committee has proposed reviewing state and local governments’ share of VAT revenue to 90 percent.
According to section 40 of the VAT Act, the federal government gets 15 percent of the tax revenue, states share 50 percent, and local governments share the balance of 35 percent.
However, Oyedele said the committee is recommending reducing the federal government’s share from 15 percent to 10 percent.
“We are proposing that the federal government’s portion should be reduced from 15 percent to 10 percent. States’ portion will be increased but they would share 90 percent with local governments,” he said.
Oyedele said the committee proposed adjusting the sharing formula for VAT because it is a tax of the states.
“In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 per cent as cost of collection and that is the 15 per cent charged today came about. But we think it is too much,” he said.
The tax expert added that the burden of VAT should be on the ultimate consumer.
“So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing,” Oyedele said.
“Nigeria’s economy is more than 50 percent in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50 percent and it won’t even fly.
“So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services and accommodation will carry zero percent VAT. So for the poor and small businesses, no VAT.”
Oyedele said other consumers will pay a bit more.