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FBNQuest: Fresh VAT hike needed to boost revenue

Although the latest fiscal revenue data on Value Added Tax (VAT), released by the National Bureau of Statistics (NBS), shows improved collections in Q2’21 compared to Q1’21 and Q2’20, analysts at FBNQuest Research have said that Nigeria needs to further increase VAT if it wants to generate more revenue.

 

In a report obtained by New Telegraph yesterday, the analysts, citing Central Bank of Nigeria (CBN) data, pointed out that total federally collected tax revenue (before distribution to the three tiers) represented 6.7 per cent of Gross Domestic Product (GDP) in 2019 and 5.9 per cent last year, noting that a recent World Bank research paper concluded that “Nigeria’s ratios were the lowest anywhere.”

As the analysts put it, “an oil producer and economy on Nigeria’s scale should be generating at least 15 per cent from its total tax take, and closer to 20 per cent.

 

The numbers we have cited show that another hike in the standard rate of VAT would be a decent step in the right direction. Improving compliance and the culture of taxpaying is essential but produces less rapid results.”

 

Also commenting on the NBS data, the analysts noted that while VAT generated in Q2’21, “breached the N500 billion threshold for the first time and increased by 3.2 per cent q/q,” they believe that the increase, “was largely the result of efficiency gains.”

 

They further stated: “The y/y rise in total collections was 56.6 per cent but we should remember that cash transactions predominate in Nigeria and that the country was under lockdown in Q2’20. The broader trend is positive, with the full-year total rising by eight per cent in 2019 and 29 per cent last year.

 

“The acceleration reflects the hike in the standard rate of VAT from 5.0% to 7.5 per cent with effect from February 2020. The new rate still lags the standard 15 per cent levied by Nigeria’s fellow members of the Economic Community of West African States (ECOWAS).”

 

New Telegraph reports that the International Monetary Fund (IMF) in February advised the Federal Government to increase VAT to 15 per cent by 2025.

 

At the time, the fund said the Nigerian economy was at a critical juncture, having been weakened by falling per capita income, double-digit inflation, limited buffers, significant governance vulnerabilities, and the Covid-19 crisis.

 

With the consolidated government revenue-to- GDP ratio at 8 per cent in 2019, said to be among the lowest in the world, the IMF said Nigeria had limited policy space to respond to the crisis in the economy.

 

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