But Nigerians have reacted angrily to a move by the government to increase Value Added Tax, or VAT, from 5% to 7.2%.
Nigerians angry as govt. increases consumption tax
After months of testing the waters, the Nigerian government has declared about 50 percent increase in Value Added Tax (VAT).
Nigerian residents will now pay 7.2 percent of the cost of items against the 5 percent en-force before.
The tax authority, Federal Inland Revenue Service has justified increase in VAT, stating that Nigeria paid the lowest VAT rate in the world.
But Nigerians have reacted angrily to a move by the government to increase Value Added Tax, or VAT, from 5% to 7.2%.
Opposition party, the Peoples Democratic Party (PDP) in a statement on Friday called the government insensitive while many have taken to social media to vent their frustration. Some have said that, with the already difficult economic situation in the country, the tax increase will only make things worse.
Many Nigerians say the tax increase is likely to put more pressure on low-income families, and businesses. Opposition politicians have also criticised the move, saying it will push up the cost of living.
But the government says it is necessary to diversify its revenue sources away from oil, something which the economy has depended on for decades.
Nigeria’s finance minister said the tax boost will also help the country’s 36 states pay workers’ salaries.
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At the opening of African Tax Administration Forum (ATAF) Technical Workshop on VAT recently in Abuja, Fowler noted: “I know there will be a backlash but I believe that an economy like Nigeria should pay more than five percent VAT”, he said.
Fowler said many countries had identified Nigeria as a big market and many of them were doing online businesses, adding that there was the need to tap the potentials to generate more revenue for the country.
He, however, said that the date of commencement of the VAT on online transactions would be subject to the government’s approval.
“We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international.
“VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31 percent. This is higher than the Organisation for Economic Cooperation and Development’s average of 20 percent.
“This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets.
“It is, however, also bearing in mind the rights of our taxpayers,” he said.
He said in Nigeria, VAT is critical to the development of projects at all levels of government.
“VAT revenue is shared 15 percent to the Federal Government, 50 percent to state governments and 35 percent to local governments.
“FIRS wrote to all commercial banks in May 2018, requesting for a list of companies, partnerships and enterprises with a banking turnover of N1 billion and above.
“This activity is aimed at ascertaining those companies that are compliant with the tax laws and those that are not,” he said.
Mr Fowler, who is also the chairman of ATAF, said the African tax outlook gave some starting points on the questions to ask regarding some aspects of VAT.
“Why does VAT contribute 51 percent to total tax revenue in Senegal but only 17 percent in Nigeria? Why is the ratio on VAT refunds at 49 percent in Zambia but only one percent in The Gambia?” he queried.
Mr Fowler charged participants at the workshop to find answers to the questions and address the gaps in some countries to improve VAT collection.
The Executive Secretary of ATAF, Logan Wort, said the establishment of the ATAF VAT Technical Committee in 2017 had given rise to various debates aimed at giving better policy options for countries.
Wort explained that this would enable member-states to share ideas and techniques on how best to administer, design and audit VAT.
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