Wednesday, June 23, 2021

Nigerian govt unveils strategic revenue growth initiative, to increase VAT on select goods

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The federal government has unveiled a Strategic Revenue Growth Initiative, SRGI, for sustainable revenue generation in various sectors of the economy, part of which is to increase Value Added Tax, VAT, from the current 5 per cent.

Speaking in Abuja while launching the SRGI, on Wednesday, the Minister of Finance, Zainab Ahmed, said the implementation of the initiative would significantly boost the federal government revenue outlook in the months and years ahead.

She said: “Nigeria’s low revenue generation capabilities have been an enduring challenge to past and present governments.

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“Although we are celebrated as the country in Africa with the largest economy, translating this wealth into revenues remains a challenge.

“We have therefore faced difficulty in mobilising domestic funds necessary for human capital development and infrastructure that are both drivers of sustainable economic growth.

“Our current revenue to GDP ratio of about seven per cent is unsatisfactory and we are keen on exerting all efforts in turning this around.

“The case remains the same with our current contribution between oil and non-oil revenues to oil and non-oil GDP, for which our analysis on oil revenue to oil GDP reveals as 39% while non-oil revenue to non-oil GDP as 4.2%.

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“Our VAT revenue to GDP in Nigeria, for example stands at less than 1% (0.8%) which compares unfavourably to the ECOWAS average of 3.4%. So also, is our excise revenue which is 4.1%, compared to Ghana at 15% or Kenya at 19.5%.”

The minister disclosed that Excise duties would be enlarged beyond the current tobacco and alcohol, to include carbonated drinks.

“We are studying the possibility of a VAT increase. But you also know that a VAT increase requires an amendment of the law. So a steering committee will look at the details.

“It is most like that the VAT increase will be selective. It will be on special items. It will not be across the board.

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“I am sure you know there are products that are VAT exempt such as foods and drugs.

“During the course of 2019, we will have the clarity as to which items and what the rate will be and we will have to take a request to the National Assembly for amendment to the law,” she said.

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On luxury goods tax, she said, “There is also going to be luxury goods tax. Already there is a luxury tax on jets. There are very few exceptional items that are considered luxury.

“We are considering increasing excise duties to include carbonated drinks, just like you have excise duties on tobacco and alcoholic drinks.

“But this is going to be a subject of a study because we have to identify which ones to be affected and the best way to apply the taxes.

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“So we have some work to do before we can say this will be done in March, in June, September of December of 2019,” the minister said.

The new impetus to push for revenue, she stated, had become imperative given the low level of its record, over the years, amid mounting expenditure needs.

In his remarks, the Chairman of the Federal Inland Revenue Service, FIRS, Babaunde Fowler, disclosed that only a handful of items would be affected in the upward review of the VAT.

“As the minister has said, the VAT upward review will only affect items that I believe are not necessary. Those who want to take Champaign, I believe will not mind paying some more tax on it,” Mr Fowler said.

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Also speaking at the SRGI launch, the Comptroller-General of the Nigeria Customs Service, NCS, Hameed Ali, said that the organisation had made a presentation to the federal government on the need to cut the 35 per cent Automotive Levy.

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Mr Ali agreed that the 35 per cent Customs duty and another 35 per cent Automotive Duty, totaling 70 per cent paid by importers on new vehicles was too high.

“We, as the Customs Service, have made a presentation to the Honorable Minister of finance, on the need to review the Automotive Levy.

“35% duty is the baseline. But the 35 per cent Levy is what we think should be tinkered with. We should be able to reduce that to a level that is affordable.

“70 per cent is on the high side. No doubt about that. That is why we have been appealing to the federal government to review and I hope that it should be in the pipeline,” he said.

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