The Federal Government appears unrelenting in its plan to raise Value Added Tax (VAT). The only impediment will be if the legislative arm is unconvinced by the arguments of the Executive Arm canvassed during Tuesday’s budget presentation by President Muhammadu Buhari.
In fact, the 2020 Budget is based on revenue inflows from the new VAT increase.
In a Finance Bill that accompanied the 2020 Budget, the President asked for a fifty percent increase of VAT from 5% to 7.5%.
According to him, the Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to the nation’s fiscal laws. The objectives are:
▪Promoting fiscal equity by mitigating instances of regressive taxation;
▪Reforming domestic tax laws to align with global best practices;
▪Introducing tax incentives for investments in infrastructure and capital markets;
▪Supporting Micro, Small and Medium-sized businesses in line with the Ease of Doing Business Reforms; and
▪Raising Revenues for Government.
The President disclosed that the additional revenues through VAT will be used to fund health, education and infrastructure programmes.
“As the States and Local Governments are allocated 85% of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well,” he said.
Apparently in an attempt to gain acceptance and ease the passage of the bill, the government is proposing the enlargement of goods exempt from VAT.
Section 46 of the Finance Bill, 2019 expands the exempt items to include Brown and white bread; Cereals including maize, rice, wheat, millet, barley and sorghum; Fish of all kinds; Flour and starch meals; Fruits, nuts, pulses and vegetables of various kinds; Roots such as yam, cocoyam, sweet and Irish potatoes; Meat and poultry products including eggs; Milk; Salt and herbs of various kinds; and Natural water and table water.
In addition, the bill proposes the raising of the threshold for VAT registration to N25 million in turnover per annum, such that the revenue authorities can focus compliance efforts on larger businesses.
This, the President said, is intended to bring relief to Micro, Small and Medium-sized businesses.
Noting that it is absolutely essential to intensify revenue generation efforts, he says the Administration remains committed to ensuring that the inconvenience associated with any fiscal policy adjustments, is moderated, such that the poor and the vulnerable, who are most at risk, do not bear the brunt of these reforms.