Federal Government to Increase VAT to 7.2%, Cost of Goods & Services likely to go Up, & Labour Union Agreed to this.

Federal Executive Council (FEC), presided over by President Muhammadu Buhari has approved a 2.2% increase in Value Added Tax (VAT) to move it from 5% to 7.2%. VAT is a type of consumption tax placed on a product at every stage of processing/value addition. The cost is usually paid by the consumer.

Zainab Ahmed, minister of Finance, Budget and National Planning, made this disclosure while briefing State House Correspondents at the end of the FEC meeting, she however, said the implementation will not start until the approval by the National Assembly after the VAT Act is amended.

She said, we also reported to council and council has agreed that we start the process toward the increase of the VAT rate. We are proposing and council has agreed, increase in the VAT rate from 5% to 7.2%. This is important because the federal government only retains 15% of the VAT; 85% is actually for the states and local governments. The states need additional revenue to be able to meet the obligations of the minimum wage.

“This process involves extensive consultations that need to be made across the country at various levels and also it will involve the review of the VAT Act. So, it is not going to be implemented immediately until the Act is reviewed.”

Recall that the federal government had in June, said it would raise VAT to 7.5% by 2020 from the present 5%. Zainab, at that time said, “we have developed a strategic revenue growth initiative, which we have started implementing. Our target is to increase revenue to 65% minimum in 2019 so that in the next three years, we are able to attain 80-85% of our revenue target.

“We are looking at adding value-added tax from 5% to 7.5%. 5% is one of the lowest VAT globally. The increase will not be done overnight but hopefully, by the next budget (2020), the new increase will take effect.

“We recently increased the minimum wage and one of the agreements we had with labour was that there would be some marginal increase on VAT to enable us to handle the incremental cost of increasing wages.”