States and LGs will Benefit More from VAT Increase – Finance Minister

 Minister of Finance, Zainab Ahmed has said that the proposed increase in Value-Added Tax (VAT) from 5 to 7.5 per cent will be more beneficial to state governments and Local Government Areas (LGAs) in the country, many of which are already facing difficult conditions.

This was disclosed in a statement issued by the Minister’s SA on Media and Communication, Yunusa Abdullahi on Friday.

According to Mrs Ahmed, the proposal is subject to legislative intervention by the National Assembly who will have to amend the Revenue Act to reflect the proposed increase.

She added that the increase will exempt the basic necessities such as food, medicines and education.

“The benefit of an increase in VAT is, therefore, more beneficial to state governments and Local Government Areas (LGAs) in the country, many of which are already facing difficult conditions. The proposed increase in VAT is therefore expected to create additional fiscal space.

“The proposed increase is however subject to legislative intervention by the National Assembly who will have to amend the Revenue Act to reflect the proposed increase.

“The existing VAT Act exempts the basic necessities such as food, medicines and education which therefore minimises the impact on the poor and vulnerable segments of the Nigerian society from the burden thereof. It is expected that the exemptions will be maintained in the amended Act.”

Ahmed maintained that if the increase is correctly implemented, it could bring in huge revenues for the country and reduce fiscal deficit burden.

“It is gladdening that the VAT increase if correctly implemented, could bring in huge revenues, which would actually reduce the fiscal deficit burden.

“The government’s borrowing programme could then ease and certainly the financially affected states and local governments could later focus on issues like poverty reduction, healthcare and power generation and transmission.

“According to the industry experts, the VAT increase, if enforced properly, forms part of the fiscal consolidation strategy for the country. It could, in fact, help address the fiscal deficit problem and the revenues estimated to be collected could actually mean lowering of the fiscal deficit burden for the government across board.”

The Federal Government on Wednesday said that consultations will begin at all levels on the increase from 5 – 7.5 per cent.