Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, said yesterday that the government had no plan to increase Value Added Tax (VAT).
He said government would rather focus on sustainable economic policies that impose no further burdens on the citizen.
The minister refuted claims in some quarters that there is a potential hike in VAT from 7.5 per cent to 10 per cent, assuring that no such tax increment is under consideration.
Edun said President Bola Tinubu remained committed to fiscal stability and sustainable economic policies that will not impose further burdens on citizens.
The minister reiterated that Nigerians will pay no tax on basic goods and services, including food, rent, transportation, healthcare and education, under the ongoing tax reforms by the Federal Government.
He added that all essential households’ consumptions and businesses will be exempted from VAT.
Edun’s clarifications came as the latest report by the NBS showed that government was becoming more efficient in tax collections, with increases in VAT collections and Company Income Tax (CIT), even at current rates.
The NBS stated that VAT collection rose by 9.11 per cent to N1.56 trillion in second quarter of 2024 from N1.43 trillion in first quarter of 2024.
However, compared to second quarter of 2023, the second quarter of 2024 VAT collections represented an increase of 99.82 per cent.
In another report titled: “Company Income Tax (CIT) Second Quarter 2024”, the NBS reported that aggregate CIT rose by 150.83 per cent to N2.47 trillion in the second quarter of this year from N984.61 billion in first quarter.
Compared to the second quarter of 2023, CIT collections in second quarter of 2024 increased by 59.52 per cent from N1.55 trillion recorded in comparable quarter in 2023.
Edun said: “The current VAT rate is 7.5 per cent, and this is what the government is charging on a spectrum of goods and services to which the tax is applicable. Therefore, neither the Federal Government nor any of its agencies will act contrary to what our laws stipulate.”
This statement is seen as a direct response to media reports suggesting that government was preparing to increase VAT as part of its economic recovery strategy.
Edun noted that the misinformation had created unnecessary panic.
He reiterated the administration’s commitment to using fiscal policy to achieve robust and sustainable economic growth, reduce poverty, and foster an enabling environment for businesses to flourish.
The minister underscored the importance of a balanced and stable tax system for Nigeria’s fiscal health, stressing that tax policy, tax laws, and tax administration must work in harmony.
Edun stressed: “The tax system stands on a tripod, namely tax policy, tax laws, and tax administration. All three must combine well to give us a sound system that gives vitality to the fiscal position of the government.”
Contrary to the rumour that government wanted to impose more financial hardships on Nigerians, Edun highlighted relief measures taken by the administration to mitigate the impact of inflation and rising food prices.
He said the recent suspension of import duties for essential commodities, including rice, wheat, and beans, were part of government’s efforts to ease economic pressure on both businesses and consumers.
He added: “It is on record that the Federal Government, as part of efforts to bring relief to Nigerians and businesses, recently ordered the stoppage of import duties, tariffs, and taxes on rice, wheat, beans, and other food items.”
The minister said these policies were designed, not only stabilise the economy, but also to ensure food security by making staple goods more affordable for the average Nigerian.
Edun urged Nigerians to disregard unverified reports, assuring the public that any tax reforms or adjustments would be communicated through official government channels.
He emphasised the importance of relying on accurate information to prevent misinformation and unnecessary anxiety among the public.
Edun said: “The imputation in some media reports on the issue of VAT and the opinion articles that have sprouted from them seem to wrongly convey the impression that the government is out to make life difficult for Nigerians.
“That is not correct. If anything, the Federal Government has, through its policies, demonstrated that it is committed to creating a congenial environment for businesses to thrive.”
The minister said the Ministry of Finance remained committed to transparent communication on all tax and economic policies to keep citizens well-informed and to avoid any confusion about government’s fiscal decisions.
The Chairman of Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, explained that the VAT regime was designed to significantly reduce the financial burden on average households, while ensuring that government revenue remains stable through adjustments on non-essential goods and services.
Under the proposal, the VAT rate for food, education and healthcare will be reduced to zero per cent, offering immediate financial relief to households.
Also, rent, transportation, and small businesses will be exempted from VAT.
Oyedele said: “Data by the NBS shows that these are the areas where the average household spends almost all their income, meaning their VAT burden will reduce.”
He said these changes were meant to ease financial strain on the masses, especially those in lower-income brackets.
The proposed reforms also include provisions for businesses.
Oyedele said businesses would claim full credit for the VAT they pay on their assets and services.
He said the move would reduce overall costs for businesses, fostering a more conducive environment for investment and growth.
Oyedele added: “Businesses will also get full credit for the VAT they pay on their assets and services, thereby lowering their overall costs and moderating inflation.”
By reducing costs for businesses, the proposal aims to curb inflationary pressures, ensuring that price increases are kept in check even as the broader economy adjusts to the new tax framework.
One of the most significant aspects of the proposed VAT regime is its focus on small and medium-sized enterprises (SMEs).
According to Oyedele, over 97 per cent of SMEs will be exempted from charging VAT on their sales, reducing the administrative burden and encouraging business growth in the sector. This is expected to have a far-reaching impact on job creation and economic development, as SMEs form the backbone of Nigeria’s economy.
Also, the reforms aim at streamlining VAT refunds, ensuring faster processing without the need for extensive tax audits. This will improve cash flows for businesses, making it easier for them to invest in operations and expansion.
The committee’s proposal also seeks to make the distribution of VAT revenue among states more equitable. This change is intended to address long-standing concerns about the fairness of VAT allocations, ensuring that all states benefit from the revenue generated, irrespective of their economic strength or size.
Oyedele said VAT be the only consumption tax charged by the government, simplifying the tax system and improving compliance across sectors. This would involve discontinuing other consumption taxes and charging VAT where applicable.
Another key aspect of the proposed reforms is the focus on export growth. Oyedele said the export of services and intellectual properties would attract a zero per cent VAT rate, encouraging businesses to expand into foreign markets and contribute to Nigeria’s export earnings.
The reduction of VAT on exports is expected to make Nigerian services and intellectual property more competitive on the global stage, facilitating trade and driving economic growth.
However, to offset the revenue loss from reducing VAT on essential goods, there is a proposal for an upward adjustment of VAT on non-essential items. This strategy ensures that the financial relief extended to households does not create a significant shortfall in government revenue.
The proposed reforms are now awaiting further deliberation and undergoing law-making processes.
Oyedele noted that the increase in VAT on non-essential goods would help maintain fiscal stability while protecting the purchasing power of ordinary citizens.
He added: “The upward rate adjustment is on non-essential items to partly offset the impact of the reduction in rate and exemption for essential items, ensuring that the masses are protected, and providing some cushion for states who earn 85 per cent of VAT revenue.”
By focusing VAT increases on non-essential items, the proposal seeks to balance public welfare with fiscal responsibility, allowing state governments, which rely heavily on VAT collections, to continue receiving their due revenue.
In its VAT report for the second quarter of 2024, NBS indicated that local payments were N792.58 billion, foreign VAT payments were N395.74 billion, while import VAT contributed N372.95 billion in second quarter 2024.
According to NBS, on a quarter-on-quarter basis, human health and social work activities recorded the highest growth rate with 98.44 per cent, followed by agriculture, forestry and fishing with 70.26 per cent, and water supply, sewerage, waste management and remediation activities with 59.75 per cent.
On the other hand, activities of households as employers, undifferentiated goods- and services-producing activities of households for own use had the lowest growth rate with –46.84 per cent, followed by real estate activities with –42.59 per cent. In terms of sectoral contributions, the top three largest shares in second quarter 2024 were manufacturing with 11.78 per cent; information and communication with 9.02 per cent; and mining and quarrying with 8.79 per cent.
The report added that nevertheless, activities of households as employers, undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.00 per cent, followed by activities of extraterritorial organizations and bodies with 0.01 per cent; and water supply, sewerage, waste management and remediation activities with and real estate services 0.04 per cent each.
CIT breakdown indicated that local payments were N1.35 trillion, while foreign CIT payment contributed N1.12 trillion in second quarter 2024.
On a quarter-on-quarter basis, NBS said agriculture, forestry and fishing recorded the highest growth rate with 474.50 per cent, followed by financial and insurance activities and manufacturing with 429.76 per cent and 414.15 per cent respectively.
NBS stated that activities of households as employers, undifferentiated goods- and services-producing activities of households for own use had the lowest growth rate with –30.22 per cent followed by activities of extraterritorial organizations and bodies with –15.67 per cent.
NBS said in terms of sectoral contributions, the top three largest shares in second quarter 2024 were financial and insurance activities with 15.53 per cent; manufacturing with 8.99 per cent; and Information and communication with 7.84 per cent.
The report said nevertheless, the activities of households as employers, undifferentiated goods- and services-producing activities of households for own use recorded the least share with 0.00 per cent, followed by water supply, sewerage, waste management, and remediation activities with 0.02 per cent and activities of extraterritorial organizations and bodies with 0.03 per cent.
Source: The nation
