The Federal Executive Council on Wednesday approved an increase in the
Value Added Tax (VAT) payable in Nigeria.
The Minister of Finance, Zainab Ahmed, announced the approval while
briefing journalists after the FEC meeting presided by President
Muhammadu Buhari.
Mrs Ahmed said the VAT was increased from the current 5 per cent to
7.2 per cent.
“We also reported to council and council has agreed that we start the
process towards the increase of the VAT rate.
“We are proposing and council has agreed to increase the VAT rate from
5 per cent to 7.2 per cent,” she said.
Mrs Ahmed gave an increase in revenue accruable to state governments
as one of the reasons for the increase.
“This is important because the federal government only retains 15 per
cent of the VAT, 85 per cent is actually for the states and local
government and the states need additional revenue to be able to meet
the obligations of the minimum wage.”
The minister, however, said the implementation will not be immediate
as there was the need to amend the current law.
“This process involves extensive consultations that needs to be made
across the country at various levels and also it will involve the
review of the VAT Act.
“So, it is not going to be implemented immediately until the Act is
reviewed,” she said.
She said the increase in the VAT was also included in the government’s
revenue projection for 2020.
“Following these assumptions, the total revenue estimate in the sum of
N7.5 trillion for the year 2020 and N2.09 trillion that will be
accruing to the federation account and the VAT respectively.
“There will of course be the distribution to the three tiers of
government based on the statutorily revenue sharing formula as defined
in the constitution and to this effect, it means the federal
government will be receiving proposed aggregate of N4.26 trillion from
the federal account and the VAT pool, while the states and the local
government are expected to receive N3.04 trillion and N2.27 trillion
respectively,” she said.
Mrs Ahmed also spoke on the government’s planned expenditure for 2020.
She said about N2.45 trillion has been proposed for debt servicing.
“The expenditure for the year 2020 is in the total sum of N10.07
trillion. This is three per cent less than the approved expenditure in
the 2019 budget that has been passed into law. The total expenditure
includes statutory transfers, non-debt recurrent expenditure such as
salaries and pensions and also the Social Intervention Programme.
“The 2020 budget has a debt service estimated at N2.45 trillion and a
sinking fund to retire maturing obligations issued to local
contractors and other creditors in the sum of N296 billion. So there
is a total sum of N3.43 trillion that is provided for personnel and
pension cost inclusive of N218 billion for the top 19 government-owned
enterprises in the country. This represents an increase of N453
billion over the 2019 approved budgetary expenditure. This also
implies a 40 per cent of this recurrent expenditure to the projected
revenue.
“The budget deficit is projected at N2.15 trillion in the year 2020
and this is lower than what was approved in the 2019 budget which was
N2.47 trillion.
“Let me state that these projections include drawdowns on project tied
loans and these represent 1.51 per cent of estimated gross domestic
product (GDP). This is well below what is allowed by the Fiscal
Responsibility Act of 2007 which is still put at 3 per cent.
“I want to add that council approved our presentation and so the next
phase for us is to consult with the National Assembly and then the
Medium Term Expenditure Framework (MTEF) to the National Assembly for
their own view and subsequent approval,” she said.
The 2020 budget proposal is expected to be submitted to the National
Assembly when they reconvene from their recess later this month.
Senate President Ahmed Lawan has said the National Assembly would pass
the budget before the end of the year if it receives it early from the
Executive.
