The Chairman of the Presidential Tax and Fiscal Policy Reforms Committee, Taiwo Oyedele, has said the proposed plan to increase the Value Added tax rate from 7.5 per cent to 10 per cent will be implemented in phases.
This was as he revealed that empirical data had confirmed that less than 10 per cent of affluent Nigerians fulfill their obligation to file and pay the correct amount of taxes to the government.
Speaking at a public consultation workshop for journalists and public analysts held in Abuja with the theme, ‘Proposed changes to the national tax policy, tax laws and administration,’ on Monday, Oyedele stated that the VAT revenue-sharing formula had also been reviewed to increase state collection rate from 50 to 55 per cent, local government area to 35 per cent and reduce FG rate to 10 per cent.
He asserted that implementing this measure would not only enable the government to sidestep a notable decline in revenue but also mitigate the sudden surge in prices of goods and services overnight.
He said, “The reforms will reduce Company Income Tax from 30 per cent to 25 per cent but it will be implemented in phases, so like in 2025, it may be reduced from 30 per cent to 27.5 per cent and then in 2026, reduced from 27.5 per cent to 25 per cent. The VAT as well, which is part of the items we are adjusting upwards will also be in phases, in 2025, a little increment and in 2026, another increment.
“So overall, we don’t want to drop government revenue overnight, if we adjust overnight, the impact on government revenue will be significant and if it is increased overnight, the impact is still significant, so we would see a lot of phasing in the work we are doing but we would pass the law and it would tell you what the rate would be in the future. These are some of the things we are saying should be done to prove that there is proper planning.”
VAT is a 7.5 per cent consumption tax administered by the Federal Inland Revenue Service when goods are purchased and services rendered. The final consumer bears the tax burden.
Revenue generated from VAT is usually disbursed to the three tiers of government through the Federation Accounts Allocation Committee at a current formula of 15 per cent for the central government, 50 per cent for states and 35 per cent for local governments.
The government raked in N10.1tn from the collection of Value Added Tax under former President Muhammadu Buhari and constitutes a major source of income for sub-nationals.
Despite the huge amount, the government has clamoured for increased rates. The former Minister of Finance, Zainab Ahmed, had advised the current government to increase VAT from 7.5 per cent to 10 per cent.
The tax expert added that the committee had also recommended that food, education, medical services and accommodation to carry zero per cent VAT in order to reduce the cost of products affecting headline inflation.
According to him, steps have been identified to increase the compliance rate from 30 per cent to more than 90 per cent.
“Our major contributors to inflation account for 82 per cent of why there is inflation and why we think our recommendation will reduce inflation and not increase it. If we don’t allow this to work, we will lose out on the opportunity to make things better for ourselves.
“The solution to VAT is a political solution and not legal, so we have recommended that VAT collection should be in the constitution and we have recommended to the national assembly put VAT under the exclusive legislative list so that it can collected centrally but 90 per cent goes to the state and 10 to the central government and we think that would resolve some of the problems, particularly the percentage of derivation that they would get.”
“One of our recommendations is that nobody should qualify for elective office or government appointment unless they have fully complied with their tax obligations in terms of declaration and payment. Some rich Nigerians don’t pay tax and that is correct, we have the data to support that, if you look at the rich Nigerians who pay the right amount of tax are less than 10 per cent and that is where the money is and not in the informal sector.”
In his presentation, the chairman also revealed that the proposed list of harmonised taxes and levies included income tax, property tax, Value Added Tax, customs duties, excise tax, stamp duties, special levy, and harmonised levy.
He also hinted at the social security contribution, which he said was “not a tax.”
He said the Harmonised Tax Levy, which comprised road and market taxes, was meant to cater for the local governments.
The PFPTRC chairman said under the proposed new tax regime, income tax should now comprise Company Income Tax, Withholding Tax, CPT, and capital gain tax, among others
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