September 12, 2019 / 6:04 PM / in a month

UPDATE 2-Nigeria plans VAT increase in push to raise non-oil revenue

(Adds comment by chairman of Senate committee on finance, paragraph 8, other details)

By Felix Onuah

ABUJA, Sept 12 (Reuters) - Nigeria plans to increase value-added tax on goods, the finance minister said, as Africa’s biggest oil exporter seeks to reduce its reliance on crude sales.

President Muhammadu Buhari’s government has repeatedly said it wants to boost non-oil revenue since oil sales make up 90% of foreign-exchange receipts. Raising more money from taxes has proved difficult in a country where so many small businesses are not registered.

Finance Minister Zainab Ahmed, addressing journalists late on Wednesday after a Cabinet meeting in which the proposal was approved, said the government proposed raising VAT next year to 7.2% - up from 5%. The current level is one of the lowest in the world.

“This is important because the federal government only retains 15% of the VAT - 85% is actually for the states and local government,” she said. “The states need additional revenue to be able to meet the obligations of the minimum wage.”

Nigeria’s minimum wage was increased in April to 30,000 naira ($98) a month from 18,000.

Prior to the minimum wage rise, the government had argued that many of Nigeria’s 36 states struggled to pay salaries of state employees.

The planned VAT rise must be approved by parliament before it can become law.

The committee on finance in parliament’s upper house, the Senate, will invite Ahmed and the chairman of the Federal Inland Revenue Service to explain the reasons behind the plan, its chairman said late on Thursday.

Earlier, the main opposition People’s Democratic Party (PDP) criticised the proposal.

“An increase in VAT will worsen our decrepit economy and put more pressure on families and business as it will result in (an) increase in costs of goods and services,” said the PDP in a statement.

The West African country fell into a recession in 2016 as a result of low oil prices. Despite emerging from the recession two years ago, economic growth remains low - at 1.94% in the second quarter.

Inflation has remained in double figures for the last three years, above the central bank’s single-digit target, which has pushed up the cost of living in a country where most people live on less than $2 a day.

The proposed VAT hike is part of a broader drive to increase tax revenue.

Last week Nigeria’s tax chief told Reuters 5.32 trillion naira ($17.39 billion) was collected in taxes in 2018 and his office was targeting 8.9 trillion naira this year. ($1 = 362.48 Nigerian naira)

Reporting by Felix Onuah and Camillus Eboh in Abuja Writing by Alexis Akwagyiram Editing by Giles Elgood and Matthew Lewis

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