Let Us Talk About VAT Increase


The federal government has recently increased the value added tax (VAT) from 5% to 7.5%. The increase in VAT has continued to generate uproar and mixed reaction in the country. The organised labour and some economy experts have condemned the move in strong term and described the increase as untimely aimed at inflicting more pains to the lives of poverty ravaged Nigerians. The N.L.C stated that, the increase in VAT while government is still negotiating the minimum wage will not augur well to welfare of Nigerians workers. The VAT will end up eating the much talked minimum wage and erode the expected gains that might arise from the implementation. If the VAT is adjusted and assented by the national assembly, Nigerians next year are going to pay more for the goods and services they will consume. The Nigerian rent-seeking economy has continued to nosedive due to the uncertainty or volatile in the global oil market. The market price of crude oil which constituted 90 percent of the country’s revenue has continued to hover around, affecting the successful implementation of our budget.

This is the main reason why government is exploring any other avenue to generate revenue and complement the earning from the crude oil sale. Government has resorted to VAT increase because its the quickest ways to generate funds. What is Value added tax (VAT)? A value-added tax is a consumption tax levied on products at every point of sale where value has been added, starting from raw materials and going all the way to the final retail purchase. VAT is commonly expressed as a percentage of the total cost. For example, if a product cost 100 and there is a 7.2% VAT,the consumers pays #107.2 to the merchants. The merchant keeps #100 and remits #7.2 to the government.
The proponents of Value added tax make the argument that a VAT system encourages payment of taxes and discourages attempt to avoid them. The fact that, VAT is charge at each stage of production rewards tax compliance and acts as a disincentive from operating in the black market. It also helps to generate revenue to the government. The opponent of VAT claim that it unfairly burdens people with lower income. Unlike a progressive tax, VAT is like a flat tax where all consumers of all income level pay the same percentage, regardless of earning whether your annual income is #50,000 or 500,000 you are levied the identical 7.2% Vat on product and services. Obviously,that 7.5% increase will cut deeper into the budget of low earners than the high earners.
The proposed VAT increase will fetch more resources or revenues to the government. I have learnt that based on the agreed sharing formula, state governments would get the bulk of resources. State governments are expected to get 50%,local government 35% and the federal government 15%.However,the hue and cries that greeted the news of hike in VAT can not be unconnected with high rate of poverty in the country and lack of financial prudence among the states government.Evidence is the inability of some state governors to meet up with the salary obligation of their states in spite of the bail out dished to them by the federal government.


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