The new 7.5 percent Value Added Tax (VAT) has put a lot of strain on the wallet of Timothy Eze, a 25-year-old marketing staff who is working as a contract employee with one of Nigeria’s tier-2 lenders.
With a monthly salary of N40,000, Eze spends at least N10,050 monthly to call his younger sister in the village who lives with their sick mother. There is a high expectation from Eze to provide for his younger siblings and his sick mother considering he is the first child and the only graduate in the family.
“I talk to my family about two to three times a day,” Eze says. “I usually call my younger sister to ensure she does not fail to give my mum her drugs as she has been down with diabetes and stroke. Apart from the money I send home on a monthly basis, airtime is another thing that swallows my income.”
Now, with the increase in VAT, Eze could be spending as much as N12,000 per month on voice calls, depending on how frequently he makes the call and on the tariff of the service provider.
Eze’s story mirrors that of millions of other Nigerians, who are already feeling the pinch of the new VAT rate. Seven days into the enforcement of the new 7.5 percent VAT rate, the effect of the tax raise is already being felt, particularly on taxable consumer goods and services which now attract a VAT that is 2.5 percentage points higher than the previous 5 percent.
VAT is a consumption tax payable on goods and services purchased by individuals, government agencies and business organisations. It is one of the sources of government revenue generation.
As Nigerian businesses began the implementation of the new VAT effective February 1, 2020, consumers are hit with a surge in the prices of goods and services.
Among the commodities that have had a spike in their prices, toothbrush and airtime topped the list of items that were most complained about from a BusinessDay survey.
“The Federal Government has increased VAT (Value Added Tax) to 7.5 percent across several sectors, including telecoms,” the Nigerian Communications Commission (NCC) said.
According to Funsho Ola-Oju of Andersen Tax, the new VAT will largely affect the spending capacity of a lot of Nigerians.
“Price of goods and service will increase, transport too will be expensive,” he said.
The consumers hit the most with the new VAT are the ones whose earning capacity falls within the range of the N30,000 minimum wage, as compiled from BusinessDay survey.
According to BusinessDay analysis, the new 7.5 percent VAT puts the new call value offered by Nigerian telecommunication companies at about an average of 17 kobo per second as against the average of 14 kobo per second before the 50 percent hike in VAT. The same is expected for the cost of data.
“What it means is that the telecommunications company will not increase the cost of recharge cards but the value offered will reduce compared to what they offered before the increase in VAT, meaning Nigerians will be paying more for the same value they were getting at a lesser cost,” an industry expert told BusinessDay on the condition of anonymity.
While Nigeria’s new 7.5 percent VAT remains one of the lowest in Africa behind Kenya’s 16 percent, and South Africa’s 15 percent, Nigeria’s minimum wage is almost two times less than what is being offered in other African countries.
The new N30,000 ($82) minimum wage in Nigeria is lower than Kenya’s Ksh13,572 ($130.86) and R3,500 ($240) paid in South Africa.
Checks by BusinessDay also revealed that contrary to the claim that Nigeria’s VAT policy does not affect the poor but only those who can afford luxury items, the VAT actually affects the general public who consume the items that were not exempted from the tax.
“Now that telcos are adding 7.5 percent VAT to calls/texts, is the government saying only the rich make phone calls?” a young man who simply identified himself as Kule told BusinessDay.
Ayorinde Akinloye, a consumer goods research analyst at Lagos-based CSL Stockbrokers, said the Federal Government has continually stated that goods used by the average Nigerian “would not be affected but I doubt that and what we are seeing is an expected backlash from the masses”.
Even though some Nigerians enjoy the tax benefit on the exempted items, the 94 million Nigerians who currently live below the global poverty line of $1.90 a day and considered extremely poor, according to the World Bank Group, still consume some value-added products and services which were examined to ascertain the veracity of the claim.
VAT is not charged on commodities like basic food items – additives (honey), bread, cereals, cooking oils, culinary herbs, fish, flour, and starch, fruits (fresh or dried), live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, and water (natural and table water.
Also exempted are locally manufactured sanitary towels, pads or tampons. Services rendered by microfinance banks, tuition relating to a nursery, primary, secondary and tertiary education also made the list.
