Nigerians may not be paying too much if VAT increases to 7.5%
Executive Chairman of Nigeria's Federal Inland Revenue Service (FIRS), Mr Tunde Fowler speaks during an exclusive interview with Reuters in Abuja, Nigeria, September 21, 2016. Photo taken September 21, 2016. REUTERS/Afolabi Sotunde

The media space was set agog earlier this week when the news broke that Nigeria’s Value Added Tax (VAT) may inch up to 7.5% from the current rate of 5%.

The Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, disclosed this himself when he appeared before the Senate Committee on Finance, for an interactive session on the 2019 to 2021 Medium Term Expenditure Framework and Fiscal Strategy Paper.

According to him, Nigerians should brace themselves for a possible increase in VAT. The increase in VAT should will, at least, raise VAT revenue by 35-50%.

The Private Sector and labour Union Kick

The proposed VAT announcement has been met with strong criticisms. While some believe that the VAT increase will trigger inflation rate, others are of the opinion that it simply shouldn’t be increased at all.

Stakeholders in the Nigerian private sector have expressed displeasure over the proposed VAT increase. They are describing the plan as a further attempt to drag the already ailing economy

The Director-General of Manufacturing Association of Nigeria (MAN), Mr. Segun Kadir, said the following —

“Many businesses are struggling to remain afloat and these businesses are expected to raise jobs. Rather than increase rates, the government ought to broaden the tax net. The increment will increase prices, spike inflation, reduce profit margins for businesses as not many businesses can transfer this cost to consumers as consumers are already resisting hike in prices.”

The president of the  Nigeria Labor Uni, Mr Ayuba Wabba, also condemned the proposed VAT increase. According to Wabba—

“instead of increasing VAT and thereby placing more burden on the people, the government should go after all individual tax dodgers and multinationals that are in the habit of not paying tax but prefer to negotiate what they want to pay.”

Meanwhile, data show that even at 7.5%, VAT in Nigeria still among the lowest in the world

Nairametrics took a cursory look at VAT rates across major continents and discovered that even with the proposed rate of 7.5%, Nigeria will still remain one of the lowest VAT rates in the world.

Aruba, Andora, and Nigeria among the lowest VAT rate

Data has revealed that Aruba charges the lowest 1.50 VAT rate in the world, followed by Andorra (4.50), Nigeria (5.0), Canada (5.0), Saudi Arabia (5.0), Taiwan (5.0) among others.

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In Europe, Hungary tops the highest with 27% VAT rate

Data compared between online platforms show that the country with the lowest VAT rate is Luxembourg (17%) while Hungary is the country with the highest VAT rate of 27%, which is over a quarter of the value of the product. Denmark is ranked second with a 25% VAT rate, followed by Norway (25%), Sweden (25%), Croatia (24%), Greece (24%), Finland (24%), Ireland, Poland, and Portugal all 23%.

The VAT rate for goods and services in U.K has a standard rate of 20% on 4 January 2011 (from 17.5%).

In entire Europe, the average rate of VAT is about 21%. It is should be noted that VAT is the highest-earning tax for EU countries and it is therefore often the case that the VAT rate increases from one year to another.

Data also shows that Greece is the only country which knew a decrease of the VAT rate between 2017 & 2018 (6% instead of 6.5% in 2017).

However, the U.S charges only sales tax, as against China’s 15% VAT

The U.S does not charge a VAT rate. The country only charges sales tax applied on the final sale of a product or service. Unlike VAT, sales tax is not a flat rate that is applied to invoices across board; it differs from state to state and product to product. The sales tax are collected and submitted by the merchant to the United States governmental revenue department.

On the other hand, China charges a standard VAT rate of 16%, on all taxable goods and services. Following the 2012-16 VAT reforms, there are only four VAT rates in China, plus nil rating. However, the country charges 10% Standard Retail on entertainment; hotel; restaurants; catering services; real estate and construction, telephony calls; postal; transport and logistic.

In India, the standard rate of state VAT is 12.5% – 15% varying from state to state depending on the nature of products.

Also, Korea VAT rate is 10%, with other rates including 0% that can apply to certain transactions.

South Africa Charges 15% VAT higher than Egypt (14%) and Ghana (12.5%)

In South Africa, VAT is now levied at the standard rate of 15% on the supply of goods and services by registered vendors. The tax rate was 14% until 31 March 2018.

The Egyptian VAT rate is 14% Standard on all other supplies of goods, services, and imports. However, the country charges 0% on exports and related services. All financial services, Financial services; medical supplies; healthcare; public broadcasting; education; domestic energy; basic foodstuffs; and the sale and leasing of real estate are exempted.

Ghana VAT rate restructured to 12.5% in Aug 2018. Ghana has split out the 2.5% National Health Levy from the combined current VAT rate. This means the new VAT rate is 12.5%.

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