Nigeria: Tax Authority Proposes
Increase In VAT
Tax authorities in Nigeria are proposing a 15
per cent Value Added Tax to the government.
This plan was contained in a
draft policy on tax, submitted to the Minister of Finance, Dr.
Shamsudeen Usman.
The Federal Inland Revenue
Service, FIRS, also proposes a cut in the rate of income tax
payable by companies from 30 per cent to 20 per cent.
The proposed adjustments are part
of tax incentives being packaged by the government to attract
more investors to Nigeria.
The VAT increase is expected to
take effect in Year 2009 while the review becomes effective in
the 2008 fiscal year.
Ripple Effects
The cut in VAT is expected to
lead to voluntary tax compliance by companies and equally boost
total tax revenue generated by the Government.
The government recently cancelled
tax waivers, which it had put in place to encourage local and
foreign businesses to invest in the country.
An increase in VAT rate from five
to 10 per cent during the last days of former President Olusegun
Obasanjo’s government sparked a protest by the Nigeria Labour
Congress, leading to the reversal of the rate by President Umaru
Musa Yar’Adua.
The Draft Policy
According to the draft policy
“If Nigeria decides to lower its rates of income tax in order to
attract investment into the country, it would be nearly
impossible for countries like Kenya, South Africa or any of the
ECOWAS countries to compete, in view of the fact that dependence
on income taxes by these countries is much higher.”
Similarly, the draft suggests
that Nigeria can achieve competitive advantage in its tax system
through lower rates adjustment.
“In the short to medium term,
where it may not be possible for the government to provide the
quality of infrastructure on the scale needed, it should seek to
achieve the objective by making good use of the tax system. This
can be done by decreasing the burden of taxation on companies
and enterprises.”
The draft policy was put together
by a Technical Sub- Committee on the National Tax Policy.
Public Scrutiny
While receiving the policy, the
minister of finance said it was still a draft and therefore
opens to the public for their inputs.
He said, “The document is still a
draft, but would require additional inputs from all of us, even
before exposing the draft to other stakeholders in our effort to
produce a final document that would be complete and able to
stand the test of time.”
The minister said that Nigeria
needed to develop and adopt a National Tax Policy that provides
fundamental principles which would underpin all taxes in the
country.
NP/QASIM/YINKA
