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FG Working On 50% VAT Increase To Fund New Minimum Wage

By Sola Adeyemi, With Additional reports

The Federal Government is working to increase the Value Added Tax, VAT, by up to 50 per cent (from current 5 per cent to 7.5 per cent), to enable her raise funds to implement the new minimum wage about to be passed into law by the National Assembly.

It also plans to an upward review of  other taxes  such as: Company Income Tax, CIT, and Petroleum Profit Tax, PPT.

These were disclosed, yesterday, when Minister of Budget and National Planning, Udoma Udo Udoma, and Executive Chairman, Federal Inland Revenue Service, FIRS, Babatunde Fowler, appeared before the Senate Committee on Finance for an interactive session over 2019 to 2021 Medium Term Expenditure Framework and Fiscal Strategy Paper, MTEF/ FSP.

They hinted that the tax increases were inevitable, arguing that the new national minimum wage will further increase the size of the 2019 budget already in deficit.

Fowler particularly told the Senator John Enoh (APC, Cross River Central) led Committee on Finance that the proposed payable VAT by Nigerians based on the increment would be between 35 per cent (6.75 per cent) and 50 per cent (7.25 per cent).

The FIRS boss, who noted that the set goal of the revenue generating agency was to achieve N8 trillion revenue target this year, of which N3 trillion is expected from VAT, just as he puts total tax revenue for 2018 at N5.3 trillion; N4.03 trillion in 2017; and N3.31 trillion in 2016.

He stated: “By the end of this year, we should be ready for an increase in the VAT. A lot of Nigerians travel to Ghana and other West African countries and they can see that their’s is much higher. They pay when they go for those trips. We should be ready for an increase in VAT.

“I can certainly see an increase in VAT of at least 35 per cent to 50 per cent this year based on our enforcement activities. There, certainly will be an increase in Company Income Tax and also on Petroleum Profit Tax.”

On his part, Udoma who disclosed that the Federal Government had concluded plans to set up a committee to look into ways of increasing revenue to fund the new national minimum wage, however, stressed that in view of this, government was considering to forward requests to reflect slight adjustments to the 2019 budget especially as regards sourcing revenue to foot the bill for the new national minimum wage.

 The minister also disclosed that the committee was expected to enter into negotiation with those who are already above the minimum wage bracket and lower the burden on government.

 Udoma who noted that the Technical Advisory Committee on the minimum wage would submit its report to President Muhammadu Buhari this week, said: “It will be recalled that as a result of agitations from the unions that the President set up a tripartite committee to look at the Minimum Wage.

 “Every five years, it is supposed to be reviewed. It has not been reviewed even though there is no doubt that for both the Federal Government and states; it is a tough time to review wages. But the N18,000 is really too low and it is difficult for people to live on N18,000. Nigeria earns N3.72trn from royalties, petroleum tax in one year

“The President supported a revision but it is important that as we are revising (the minimum wage), we make sure that it can be funded that is why we set up the Bismark Rewane Technical Committee.

“So we will be coming to you. There may be some changes maybe in VAT and other things. But we will be coming to you in order to make sure that we can fund the minimum wage.”

The MTEF, the document on which the 2019 budget is predicated, was sent to the National Assembly on November 7, 2018, although with slight differences on the expenditure. While the MTEF has an expenditure framework of N8.7 trillion, the budget shows a figure of N8.826.

The Minister of Budget and National Planning however attributed the difference to recent upward review of the salaries of the police and expressed concern that the New National Minimum Wage will further increase the size of a budget already in deficit.

Meanwhile, Udoma told the Senate Committee that some slight adjustments were effected on the 2019 MTEF/FSP between when it was approved by the Federal Executive Council and the finalization of the 2019 budget proposals.

The minister, who was briefing the Committee on the 2019 Revenue and Expenditure Projections said the adjustment only affected the expenditure levels as it was done to reflect some unanticipated expenditure items and the consequences of those adjustments.

Before giving an overview of the 2019 Expenditure Framework, the Minister briefed the Committee on the 2018 expenditure outcomes. He stated that of the total appropriation of N9.12 trillion, N7.24 trillion had been spent as at December 31, 2018; representing 79% performance.

He indicated that Debt Service and the implementation of Non-debt Recurrent Expenditure, including payment of workers’ salaries and pensions, were on track.


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