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Fed Govt raises VAT from 5% to 7.2%

Fed Govt raises VAT from 5% to 7.2% 


Who could ever have thought that the VAT will be next in line to be seeded as one of the mechanisms to meet the Federal government promise, on the implementation of the new minimum wage? Well, it’s now in the air, The Federal Executive Council (FEC) has approved the increase of the Value Added Tax (VAT) from five per cent to 7.2 per cent; N10.07 trillion as proposal for Budget 2020 and the 2020 – 2022 Medium Term Expenditure Framework (MTEF) that will guide next year’s appropriation.

Besides, the Council approved N182.68 billion for various road projects across the country.

The Minister of Finance, Budget & National Planning, Mrs. Zainab Ahmed, told reporters at the end of yesterday’s FEC that the next step would be the presentation of the 2020 Appropriation Bill by the Executive to the National Assembly for consideration.

On the decision to raise the VAT by two per cent, Mrs. Ahmed said that the VAT Act will have to be amended first before the increase come into effect.

She said: “We also reported to council and council has agreed that we start the process towards the increase of the VAR rate. We are proposing and council has agreed increase the VAT rate from five percent 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 government and the state 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.

“So, accordingly, 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.

“The expenditure for the year 2020 is in the total sum of N10.07 trillion. This is three percent 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 Programmes (SIPs).

“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 percent 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 draw downs on project tied loans and this represent 1.51 percent of estimated gross domestic product (GDP). This is well below what is allowed by the Fiscal Responsibility Act (FRA) of 2007 which is still put at three 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 MediumTerm Expenditure Framework (MTEF) to the National Assembly for its own view and subsequent approval.”

Transportation Minister Rotimi Amaechi said the Council approved the revised estimate total cost for the rehabilitation of Itakpe/Ajaokuta Rail line.

He said: “The contract was awarded $122 million but we requested for a total of $56 million additional works which were broken down into $38.8 million additional works and 17.2 million variation now bringing the contract of Itakpe to Warri to a total of $178.7 million.

“Then we also requested for Lagos to Ibadan with extension to Lagos port complex in Apapa, we asked for additional works for $374 million with another variation of $282 million which totalled to $656.8 million added to $1.5 billion for which the contract was initially awarded.”

Explaining the various projects captured in the N182.68 billion approved by the FEC, the Minister of State for Works & Housing, Abubakar Aliyu, listed Lagos, Niger, Kano, Katsina, Edo, Kwara, Taraba, Jigawa, Imo, Abia, Yobe, the Federal Capital Territory (FCT) and Anambra as the benefitting states.

He said that the extension of the Lagos-Badagry Expressway project to the Benin/Nigerian border will gulp additional N15.2 billion.

He listed the 14 other projects as two bridges in Kontagora (N1.1 billion); Kano-Katsina Road (N9.4 billion); Kontagora-Bangi Road, Niger State (N20.3 billion); Marina-Bonny Camp Road, Lagos State (N9.2 billion); Edo State road (N4.5 billion); Kwara road (N18.4 billion); Kano State Road (N2.5 billion), Taraba State road (N12.3 billion); Niger State road (N10.6 billion); Jigawa State road  (N25.3 billion); Aba-Owerri Road (N6.98 billion); Yobe State road (N16.9 billion); FCT road (N17.3 billion) and Imo and Anambra states (N12.7 billion).


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