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.
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%.
CBN extends Covid-19 forbearance for intervention loans by another 12 months
CBN will continue to charge an interest rate of 5% for its intervention loans for another 1 year.
The Central Bank of Nigeria has announced an extension of its regulatory forbearance for the restructuring of its intervention facilities by another 12 months.
In a circular signed by Dr. Kevin Amugo, the Director of Financial Policy and Regulatory. the apex bank said it will continue to charge its borrowers an interest rate of 5% per annum as against the 9% originally offered. The CBN had on March 20th reduced the interest rates on its intervention loans from 9% to 5% as part of its response to the economic crunch brought on by Covid-19 induced lockdowns.
The CBN also offered to rollover moratorium granted on all principal payments on a case by case basis. All credit facilities had been granted a one-year moratorium starting from march 1, 2020 when the pandemic first gripped Nigeria.
See excerpt from Circular
“The Central Bank of Nigeria reduced the interest rates on the CBN intervention facilities from 9% to 5% per annum for one-year effective March 1, 2020, as part of measures to mitigate the negative impact of COVID-19 Pandemic on the Nigerian economy.”
Credit facilities, availed through participating banks and OFIs, were also granted a one-year moratorium on all principal payments with effect from March 1, 2020.
Following the expiration of the above timelines, the CBN hereby approves as follows:
1) The extension by another twelve (12) months to February 28, 2022 of the discounted interest rate for the CBN intervention facilities;
2) The roll-over of the moratorium on the above facilities shall be considered on a case by case basis.
What this means
Companies who secured intervention funds from the CBN or through any of its on-lending banks will continue to service the loans at an interest rate of 5% per annum instead of 9%.
- They can also get another year of not needing to pay back the principal sum collection. However, they will need to apply.
- Whilst this move helps the small businesses continue to manage their cash flow, it means the CBN will record a reduction in its income extended under such facility.
- Regulatory forbearance is a widely adopted concept during an economic crunch and it is meant to help stimulate businesses. These pronouncements if implemented will only affect those who borrow from the CBN or BOI but those who do not will miss out.
- Download the circular here.
LNG boss tasks FG to begin the monetization of Nigeria’s gas
Mr Attah has urged the FG to take the gas sector more seriously as the future of Nigeria’s energy lies with it.
The MD and CEO of Nigeria LNG Limited Mr. Tony Attah has tasked the Federal Government to begin the revamping and monetization of the Gas sector in Nigeria.
He made this statement while making his presentation at the 2nd virtual Nigerian Gas Association (NGA) Industry Multilogues, with the theme: “Powering Forward, Enabling Nigeria’s Industrialization via Gas.”
Mr. Tony Attah drew the attention of the audience to the hidden treasure in the Nigerian Gas industry which he believes is not getting enough attention from the government.
On the future of gas as an alternative energy source, Mr. Attah stated that the developed world is already keying into gas as an alternative to crude oil. Gas has proven to be a cleaner and more sustainable alternative.
He exclaimed that Nigeria is very rich in gas and yet poor in energy. Nigeria is the 9th country with the largest gas reserves in the world but makes very little use of it.
Mr. Attah went further to paint a clear picture of the promise of investing in gas using the success achieved by Qatar. Qatar is currently the largest LNG exporter in the world.
“We just touched on a quick case study of Qatar. Someone mentioned Qatar already from a poor fishing country to a gas giant and it took just 10 years, which is why we, as Nigeria LNG, firmly believe in the conversation and the narrative about the declaration of the decade of gas.
“We believe it is possible. If you look at Qatar from 1995, when they really went into gas development, we were just two years behind Qatar. So, Qatar’s first LNG was in 1997.
“Nigeria’s first LNG was in 1999, just two years behind. But then, within 10 years, because of the deliberateness of the government and focus on gas, they have gone to 77 million tonnes and we are at best, 22 million tonnes,” Attah said.
Mr. Attah stressed further the importance of the gas sector in Nigeria’s future. He recalled that the Nigerian Government declared 2021-2030 as the decade of gas. He pleaded with the government to take the sector more seriously as the future of Nigeria’s energy lies with it.
“Gas is the future. That future is now, and just as the Minister of State has made us to realize, gas is food in fertilizer. Gas is transport as you saw in the Auto gas project that was declared.
“Gas is life, as a matter of fact, for cooking, for heating, for existence. Gas is development in manufacturing, gas is power. Gas is everything. “We think it’s time for gas. It’s time for Nigeria to diversify and that is why we fully support the decade of gas,” he said.
What you should know
- Early last year, the director of the Department of Petroleum Resources (DPR) Mr Sarki Auwalu confirmed that Nigeria’s proven gas reserve stood at 203.16 trillion cubic feet.
- Nigeria has the 9th largest gas reserves in the world. It is also the 6th largest exporter of gas.
- The Federal Government declared the year 2021–2030 as the “Year of the Gas“. It pledged to finally kick start the development and commercialization of Nigeria’s huge gas reserves.
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