Nigeria’s Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, on Monday in Abuja, adduced reasons why the Muhammadu Buhari administration is going ahead with its proposed 50% hike in Value Added Tax (VAT) from 5% to 7.5%, despite criticisms, so far, from certain quarters.
In her opening remarks at the 25th Nigerian Economic Summit (NES#25), with the theme: Nigeria At 2050: shifting gears jointly organised by the Nigerian Economic Summit Growth (NESG) and her ministry, Mrs. Ahmed the administration’s resolve to increasing funding for critical sectors.
She listed the sectors as health and education, as well as human capital development indices, just as its target to increase funding for capital expenditure to least 30% of budgeted expenditures.
“Given these aspirations, the government has been compelled to review our fiscal policies including the proposed VAT rate increase,” she declared.
Nigeria’s VAT as a share of GDP, she reiterated, has dropped from 1% between 2010 and 2013 to 0.8% in the last four years (2015 – 2018), which she noted, “is significantly below the median of 5% of GDP in other comparable African countries. Nigeria’s low VAT-to-GDP is attributable to the low nominal VAT rate, which at 5% is the lowest in the African region (which averages at about 16%).”
Worse still, she said, at 0.2, Nigeria’s efficiency of VAT collection, is well below the African regional average of 0.33, adding that the proposed increase will likely “impact more on consumption by the urban communities and the wealthier sections of the population, than on the poor.”
Against the backdrop of fears that the VAT increase could lead to higher inflation, she said her Ministry would closely coordinate its fiscal policies with the Central Bank of Nigeria’s current tight monetary policy stance. This, she believes, will ensure appropriate outturns such as growth, consumption, and inflation are achieved.
The Federal Ministry of Finance, Budget, and National Planning, she continued, is focused on five priority areas, including a review of current tax laws, following which the National Tax Policy Implementation Committee (NTPIC) was reconstituted. The committee is to review various tax laws and produce a single draft Finance Bill 2019 capable of supporting the Federal Government’s 2020 budget.
The proposal to increase VAT rate to 7.5%, she explained further, “is in line with the recommendations of the Presidential Committee on the Funding Options for the Minimum Wage Increase.”
She challenged participants at the summit to ponder questions regarding how government can sustainably finance the future, what enablers it should put in place to mobilize and unlock private sector capital, including favorable laws, as well as roles sub-national governments should play, given the critical role played by State and Local Governments in driving basic service delivery.
She also urged experts at the event to ponder on how the administration should “shift gears to accelerate performance or perhaps leapfrog to a fiscally, globally competitive country.
Stakeholders, including representatives of government, the private sector, civil society, and most importantly all Nigerians, Mrs. Ahmed believes, should join hands to co-create a future Nigeria in which no one is left behind; and where growth is not only competitive but is also inclusive and sustainable. She also called for collaboration of all to ensure that Nigeria “as the “Giant of Africa” will lead the way in terms of innovation, industrialization, and human capital on the Continent and beyond.”

Analysts, however, insist that the government can boost national productivity and consumption, thereby boosting prosperity, creating jobs, removing more persons from the poverty bracket by drastically reducing the army of unemployed and under-employed people in the country.
According to Taiwo Oyedele, Head of Tax and Corporate Services, PwC Nigeria, for example, the government must change its approach to taxation, if it is to earn any meaningful revenue therefrom to finance the annual budget.
Oyedele, who was part of a panel, at the annual workshop of the Finance Correspondents Association (FICAN) in Lagos last month, warned that unless there is such a change, the country “cannot make money from tax.”
The current approach, he stressed, only makes tax compliance difficult, lamenting that “our thinking around taxation is completely upside down as a country. Nigeria does not seem to understand that you need to be prosperous so that you can pay taxes. So, tax does not just fall from heaven.
“As a government, I should help you make money so that you can pay me tax… It’s just common sense. Nigeria has a tax system that does not allow businesses to thrive, whether you are small or big,” he added.
The reason why Nigeria cannot make all of the money it requires to run its budget from tax, Oyedele continued, is not farfetched, and only arises from the fact that government “continues to beat up the people at the bottom of the ladder.”
Unfortunately, he continued, such lowly people “cannot give you (government) what they don’t have.”
“In societies where they think things logically,” he continued, the focus is “on the top 1% who are the rich and big companies and they will get the desired tax result,” he said.
“We pay Company Income Tax, CIT 30%, education tax, 2%, whatever is left; we pay withholding tax of 10%. If you add them together, it is more than 40% already. If you now make a mistake of having a group and you say it’s a holding company, another 30%. Who does that?!”