Nigeria’s New VAT Increase. (How Does This Affect Me?)

September 17, 2019
210 Views

    In a situation whereby the
government wants to control the flow of money in the economy; when there is a
need to increase or reduce the money supply, there are specific policies it can
use to achieve this purpose. These policies are known as Fiscal Policies.

 
  Fiscal policies refer to the use of tools like Tax and government
expenditure to control money supply in an economy. Where the government wants
to increase the money supply, it will increase its spending or reduce taxes on
goods and services. On the other hand, where the government seeks to reduce the
money supply, it will reduce its spending or increase its taxes on products and
services.

Zainab
Ahmed
,
Nigeria’s Finance Minister, Budget and Planning, stated that the Nigerian
government had approved an increase in Value Added Tax (VAT). 

In
the press conference, she said the Federal Government approved an increase of
2.2% increase in the initial value of VAT, taking it up from 5% to 7.2% to
expand fiscal revenue for the country. 

SO
WHAT IS VAT AND WHY SHOULD I CARE (HOW DOES IT AFFECT ME)?

A
value-added tax (VAT), known in some countries as a goods and services tax
(GST), is a type of charge assessed incrementally. Like an income tax, VAT is
an increase in the value of a product or service at each stage of production or
distribution. 

In
Nigeria, Value Added Tax (VAT) is payable on goods and services consumed by any
person, whether government agencies, business organisation or individuals. 

According
to the Value Added Tax Act Cap V1 LFN 2004 (as amended), some of the items
excluded from VAT include medical and pharmaceutical raw
materials and products, essential food items, baby products, commercial
vehicles and spare parts, fertiliser, diplomatic goods and others.

When
the new VAT rates get implemented, the following effects should are likely to
occur;

1. 
 INCREASE IN
GOVERNMENT REVENUE
: An increased VAT means the government would
have an increase in income to fund and promote economic activities. The
government will have at its disposal, money to build infrastructure and achieve
other targets if adequately managed. It would have a positive impact on
government revenue.

2. 
 INCREASE IN
PRICES OF GOODS:
  As a
result of the increase in Tax, the cost of raw materials will shoot up, causing
the prices of goods and services to shoot up. Most times, these are goods not
listed in the VAT exclusion list; which makes it prone to the harsh change in
policy.

Organisations
in the private business sectors and local manufacturers bear the brunt of these
policies, which shrinks the purchasing power of the buyer.

3. 
 INCREASE
INFLATION RATE:
  General increase in prices over a long period
will eventually begin to push the economy towards inflation.

4. 
 EFFECT ON
WORKERS:
  The
problem here is simple. Now that the VAT is likely to shoot up, people who
remain in constant salary gap, given existing household expenditures will
suffer hits on their purchasing power. Thereby making people use their income
to pay for goods and services at higher prices. When policies such as this take
effect, the labour market cuts its cost on labour and tries to improve on other
areas to sustain their business to survive an economic hit.

5. 
 EFFECT ON
MARKET OPERATIONS
: An increase in Tax will discourage consumption
due to higher prices. People will tend to buy fewer items to reduce cost. This
decision will hurt businesses and employees.

It
is important to note that the Federal Government only retains 15% of the VAT,
85% is actually for the states, and local government and the state need
additional revenue to be able to meet the obligations of the minimum wage. 

This
process of VAT Rate implementation involves extensive consultations that need
to be made across the country at various levels and also it will include the
review of the VAT Act. So, it is not going to be implemented immediately until
the Act gets reviewed. 000000000

You may be interested

VIDEO: Abacha didn’t loot any penny, best President Nigeria ever had – Buba Galadima
News
2 views
News
2 views

VIDEO: Abacha didn’t loot any penny, best President Nigeria ever had – Buba Galadima

Webby - March 24, 2024

Buba Galadima had said Abacha was the best president Nigeria had, and he never looted any penny. Galadima, in an…

New pattern of car theft sweeps across Lagos
News
News

New pattern of car theft sweeps across Lagos

Webby - March 24, 2024

…Residents must be vigilant – security experts Many residents in Lagos State have raised concern over the growing number of…

Why I Attempted Suicide – Nollywood Actor, Ayoola Opens Up (Video)
News
News

Why I Attempted Suicide – Nollywood Actor, Ayoola Opens Up (Video)

Webby - March 24, 2024

Nollywood actor and singer, Ayoola Ayoola, has recounted his experience of attempting suicide. The ‘The Men’s Club’ actor said he…

Leave a Comment

Your email address will not be published.