We need to adjust VAT rate upward, says Taiwo Oyedele

The presidential committee on fiscal policy and tax reforms has said there is a need to review Nigeria’s value-added tax (VAT) rate upward.

Taiwo Oyedele, the chairman of the committee, on Monday, said Nigeria’s VAT rate stood at 7.5 per cent which calls for an increase.

Speaking at a policy exposure and impact assessment session organised by the committee, Oyedele stated that the VAT revenue-sharing formula would also be reviewed.

He noted that Nigeria’s economy is more than 50 per cent in services, prompting an increase in VAT. He added that the review will not affect businesses.

“So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses,” Oyedele said.

The chairman also revealed that food, education, medical services and accommodation will carry zero per cent VAT adding that the review will not affect the poor and small businesses.

“We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the mathematics with the private sector,” he said.

The tax expert said the committee has proposed reviewing state and local government’s share of VAT revenue to 90 per cent.

Going by section 40 of the VAT Act, the federal government gets 15 per cent of the tax revenue, states share 50 per cent while local governments are left with 35 per cent.

The tax committee is however recommending reducing the federal government’s share from 15 percent to 10 percent.

Oyedele said the committee proposed adjusting the sharing formula because VAT is a tax that belongs to the states.

He however cautioned that each state should not be granted exclusive custodianship of their collections because it would likely result in chaos.

“In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 per cent as cost of collection and that is the 15 per cent charged today came about. But we think it is too much,” he said.

According to Oyedele, the burden of VAT should be on the ultimate consumer.

“So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing,” Oyedele said.