President Muhammadu Buhari has announced that the 2020 budget estimate will be based on the newly proposed 7.5% Value Added Tax (VAT). The disclosure was made by the President while presenting the 2020 budget to the National assembly on Tuesday.
According to the President, the additional revenue to be generated from the higher VAT rate would be deployed to the health and education sectors as well as the various infrastructural development programmes.
The details: While speaking on the parameters and fiscal assumptions underpinning the 2020 appropriation and finance bill, President Buhari disclosed that a conservative oil price benchmark of US$57 per barrel has been adopted, while the daily oil production estimate is put at 2.18 mbpd with an exchange rate of N305 per US Dollar.
In order to achieve the 2020 budget, the president included a finance bill for the consideration of the Senate and passage into law. In the finance bill, five strategic objectives were highlighted. The five strategic objectives include:
Promoting fiscal equity by mitigating instances of regressive taxation;
Reforming domestic tax laws to align with global best practices;
Introducing tax incentives for investments in infrastructure and capital markets;
Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and
New VAT approved? In the financial bill draft, it was clearly stated that the 2020 Appropriation Bill is based on the proposed VAT rate of 7.5%, which was recently approved by the Federal Executive Council (FEC). Recall, that the FEC approved the VAT increment from 5% to 7.5%.
According to the President, as the States and Local Governments are allocated 85% of all VAT revenues, the new VAT guarantees greater quality and efficiency in states’ spending.
It was further stated that the VAT Act already exempts pharmaceuticals, educational items, and basic commodities, which exemptions are being expanded under the Finance Bill, 2019. Specifically, Section 46 of the Finance Bill, 2019 expands the exempt items to include the following:
Brown and white bread;
Cereals including maize, rice, wheat, millet, barley and sorghum;
Fish of all kinds;
Flour and starch meals;
Fruits, nuts, pulses and vegetables of various kinds;
Roots such as yam, cocoyam, sweet and Irish potatoes;
Meat and poultry products including eggs;
Salt and herbs of various kinds; and
Natural water and table water.
Additionally, the president disclosed that the threshold for VAT registration is raised to N25 million in turnover per annum, such that the revenue authorities can focus their compliance efforts on larger businesses thereby bringing relief for the Micro, Small and Medium-sized businesses.
Key Takeaways: Reactions are trailing the decision of the Presidency to adopt a senate unapproved VAT to prepare a budget, as experts are of the opinion that the government cannot just assume that the National Assembly will approve the VAT increment from 5 to 7.5%.
While the proposed VAT increase still awaits the approval of the National Assembly in order to give it a legal backing, this suggests that the Federal government already assumes that the newly proposed VAT will definitely get the backing of the national assembly.
The supposed approval also came against the backdrop of several criticisms regarding the proposed VAT increase.
Experts have raised concerns that the proposed VAT increase would heap more misery on the people.
However, with the inclusion, this suggests Nigerians should brace up for the implementation of 7.5% which is expected to flag off by January 2020. In essence, this is expected to increase the country’s revenue.