VAT Increment: Afrinvest exposes sharing formula of N479.7b expected revenue

Analysts at Afrinvest West Africa, have exposed the Federal Government’s intended sharing formula of the expected N479.7 billion revenue from the proposed 7.5% Value Added Tax (VAT).

According to the analysts, the Federal Government is to receive additional N72 billion based on the new sharing formula, while states are expected to receive N239.8 billion. Local governments are also expected to get N167.9 billion upon the VAT implementation.

“While the states would receive a significant boost, the increase is unlikely to make a dent on the Federal Government’s fiscal deficit which we estimate at N3.4 trillion in 2019. We believe the Federal Government requires a significant revenue boost, which would come elsewhere. Our analysis shows that removing petrol subsidies and adopting a market reflective exchange rate of N360/$1 for the computation of oil receipts would increase the Federal Government’s revenue by N880 billion,” the analysts added.

Recall that the Federal Executive Council (FEC) approved the increment of the VAT to 7.5% from 5%.The Minister of finance Budget and National Planning, Zainab Ahmed disclosed this to state house correspondents at the end of the cabinet meeting on Wednesday, September 11, 2019.

What you should know: If approved by the federal lawmakers, the new VAT rate will take effect in 2020. In Nigeria, VAT replaced the sales tax in 1994 and was pegged at 5% by the military government of Sani Abacha.

In 2007, former President Olusegun Obasanjo increased VAT to 10% on the eve of his departure from office but it was reversed by his successor, Umaru Musa Yar’Adua, following opposition from the Labour Unions.

Meanwhile, it is pertinent to note that despite wide criticisms that have greeted both the VAT increment, the Federal Government considers the move as the most potent channels to meet the new minimum wage implementation.

Source: Nairametrics

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