Determined to correct the structural defects in Nigeria’s fiscal regime, especially the structural imbalances in oil and non-oil revenue collections, the Federal Executive Council (FEC) on Wednesday approved a hike in the nation’s Value Added Tax rate to 7.2 per cent, up from the current five per cent rate.
The Minister of Finance, Budget and National Planning, Hajia Zainab Ahmed, broke the news to State House correspondents after the day’s FEC meeting in Abuja.
Ahmed, who disclosed further that consultations were ongoing as to when the proposed rate will become effective, explained that key stakeholders in the fiscal system, particularly the National Assembly and the state governments, would have to agree on the date.
Similarly, she said that before the adjusted VAT rate would become effective, there would also be the need to amend the current VAT Act with a view to providing for the proposed rate.
While projecting that the amendment of the Act may be effected in the 2020 financial year, the minister said that the proposed VAT rate was considered and approved by the FEC based on the recommendations of the ministry.
She clarified: “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 in the VAT rate from five per cent to 7.2 per cent.
“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 governments. The states need additional revenue to be able to meet the obligations of the minimum wage.”
“This process involves extensive consultations that need 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”, Ahmed added.
In a related development, the minister briefed journalists further that in line with the extant fiscal requirements, the FEC also approved the 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper for the 2020 budget, which would be presented to the Legislature for consideration.
Shedding more light on preparations for the 2020 budget, the minister hinted that the sum of N10.07 trillion had been proposed, representing about N1.16 trillion higher than the current year’s (2019) approved budget.
On the performance of the 2019 budget so far, Ahmed disclosed that the recurrent expenditure had recorded 100 per cent implementation while about N300 billion had been released for capital expenditure so far.
According to her, the projected revenue accruals for fiscal 2020 is about N7.5 trillion, adding that N2.09 trillion that will be accruing to the Federation Account and the VAT respectively.
She explained: “The Federal Government will be receiving proposed aggregate of N4.26tn from the federal account and the VAT pool, while the states and the local governments are expected to receive N3.04tn and N2.27tn respectively.
“The 2020 budget has a debt service estimated at N2.45tn and a sinking fund to retire maturing obligations issued to local contractors and other creditors in the sum of N296bn.
“So, there is a total sum of N3.43tn that is provided for personnel and pension cost inclusive of N218bn for the top 19 government-owned enterprises in the country”, the minister added.
