The federal government has declared it is not considering a reduction in the 7.5 percent Value Added Tax (VAT) expected to be paid by Nigerians.
This was disclosed on Friday by the Secretary to the Government of the Federation (SGF) and Chairman of the Presidential Task Force (PTF) on COVID-19, Boss Mustapha, during the national briefing of the committee.
He said despite the calls for the reduction of the Value Added Tax (VAT) to cushion the effect of the COVID-19 pandemic on Nigerians, such a move will be counter-productive if adopted.
He added that the government remains concerned about the welfare of Nigerians and is considering other means of alleviating the sufferings of the people apart from tax reduction.
He added that the crash in oil prices and subsequent reduction in government revenue has made it unworkable for VAT to be reduced.
He said, “We have been dependent on oil and we can see disruption that has happened with regards to our earnings in the oil and gas sector. The benchmark we had for the budget as totally be distorted. Now what we have is determined by market forces, how we sell what quantity we sell is totally beyond us. So there is a major decline in government revenue.
“The VAT is a component of government revenue. Taxes either income tax or company Tax are all parts of government revenue. The increase from 5 percent to 7.5 percent was just brought in to application in February of 2020 all in an attempt to ramp up resources to meet our 2020 budget and into the future.
“Let me explain even the sharing formula for VAT or whatever is done through the value-added tax. Only 15 percent goes to the federal government. 85 percent is shared between the states and the local governments.
“So if you reduce VAT and couple with a decrease of income that comes into the Consolidated Revenue fund of the Federation, why are states at the end of the month gather to share through the Federation account allocation committee? There will be crisis. I can tell you that will be crisis.”
He noted that VAT is charged on luxury items and most of the essential items are exempted from tax, adding that government will continue to explore means of making the lockdown comfortable for citizens.
“And mostly VAT is always on luxury items. Most of the essential items are VAT exempted like drugs, sanitary things. Basic consumer goods are exempted from VAT. VAT is always related to luxurious consumptions,” Mustapha noted.
He added: “So I think as much as possible I am not sure I want to advise at this stage for us to consider a reduction in the 7.5 percent VAT because that will really eat in to the earnings of the states and the local governments. Somebody alluded to the fact that salaries are not even been paid. So a major reduction who regards to our sources of earning will further deepen that crisis.”
