• Presidential committee considers increasing VAT rate

    Presidential committee considers increasing vat rate - nigeria newspapers online
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    The Presidential Committee on Fiscal Policy and Tax Reforms has recommended an increase in the value-added tax (VAT) rate.

    Nigeria’s current VAT rate sits at 7.5%.

    The chairman of the committee, Taiwo Oyedele, made the recommendation during a policy session of the committee on Monday.

    Oyedele proposed a revision to the current VAT revenue-sharing formula between federal, state, and local governments.

    Section 40 of the VAT Act states that the federal government receives 15% of tax revenue, the states receive 50%, and local governments receive the remaining 35%.

    Oyedele, however, 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.

    According to Oyedele, the committee proposed adjusting the VAT sharing formula because it is a state tax.

    “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.

    He added that the burden of VAT should be on the ultimate consumer, saying that “we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing.”

    “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 noted that other consumers will pay a bit more, adding that “we have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the mathematics with the private sector.”

    He also disclosed that each state should not be granted exclusive custodianship of their collections– because it would likely result in chaos.

    The Central Bank of Nigeria had recently mandated bank customers to start paying a cybersecurity levy on most of their electronic transactions, as stated in the outlawed Cybercrime Act 2015.

    The apex bank issued a directive requiring all financial institutions in the country to implement a 0.5 per cent deduction on all relevant transactions.

    The new 0.5 per cent fee will now be added to all electronic transactions that are not exempt from the cybercrime levy.

    Transactions excluded include loan disbursements and repayments, salary payments, intra-account transfers within the same bank or between different banks for the same customer, and intra-bank transfers between customers of the same bank.

    Other financial institutions’ instructions to their correspondent banks, interbank placements, banks’ transfers to CBN and vice versa, inter-branch transfers within a bank, cheque clearing and settlements, letters of credit, banks’ recapitalisation-related funding—only bulk funds movement from collection accounts, among others.

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