Government will have to factor the new 7.5% Value Added Tax (VAT) into the cost of transactions procured but not paid for before the new finance bill was signed into law by President Buhari last Monday.
The Accountant-General of the Federation, Ahmed Idris, who announced this during a chat with journalists on Wednesday in Abuja, said the new VAT is already being implemented in retrospect.
He said since the bill has become an Act, it was important for his office to obey the law which now also applies to all unpaid goods and services before the Monday signing.
Idris said in line with the new law, he had to halt the payment of a certain amount on Tuesday since the transaction was processed based on the initial five per cent VAT.
“You must charge VAT at the point of payment and that is how we have been doing that.
“I pay all capital payment over and above N250 million, I pay them for all agencies, so it is when I come to pay that I see whether the calculation of VAT and withholding tax are correct and if they are correct whether they are deducted correctly.
“At the same time I pay contractor, I pay for VAT and withholding tax, that has been how it is done all through, even when we were dealing on analog basis.
“If you are talking of VAT in super market that is how it’s done, if you are talking of government there is VAT that must be paid, there is withholding tax and we pay at the same time we are paying the service provider,” the AGF explained.
Responding to concerns on whether it was right to impose VAT of 7.5 per cent on a business transaction that was consummated one before the finance bill was signed into law, he responded that “VAT is deducted at the point of payment rather than the point of purchase.”
According to him, “You cannot implement a budget unless the National Assembly passes it and Mr President signs it. So, the decision to increase VAT was debated and members of the public were sensitised and nobody can start deducting that VAT unless the bill is signed.
“Just yesterday (Tuesday), I saw a payment which was done last year in December and when I checked the payment, the VAT on it was five per cent and I said no it must be 7.5 percent because the five per cent VAT has been overtaken by events because that is the law as at today.
“So I stopped it and asked them to go and recharge at 7.5 per cent. You cannot implement something unless you have the instrument whether administrative or legal for it to be implemented.”
The finance Act strategic objectives include, promoting fiscal equity by mitigating instances of regressive taxation (such as tax reforms for the insurance sector); reforming domestic tax laws to align with global best practices (such as taxes of digital business and e-commerce); Introducing tax incentives for investments in infrastructure and capital markets (such as targeted incentives for real estate investment trusts (REITs) and securities lending in the capital market).
It also aims to support micro, small and medium Enterprises (MSMEs) in line with the ease of doing business reforms such as Value Added Tax (VAT) threshold and lower company income tax (CIT) rates for MSMEs; and raise revenues for government to fund the 2020 Budget.
Though the Finance Act 2019 proposes an increase of VAT rate from five percent to 7.5 percent, 85% of the revenue realised from the increase would go to the States and the Local Governments Areas (LGAs), 50 percent and 35 percent respectively while only 15 percent will go to the Federal Government.
Onyinye Nwachukwu, Abuja
