The Federal Government has said that the calls for the reduction of the Value Added Tax (VAT) to cushion the effect of the COVID-19 would not be workable now.
The Secretary to the Government of the Federation (SGF) and Chairman of the Presidential Task Force (PTF) on COVID-19, Boss Mustapha, said this on Friday in Abuja at the 24th joint national briefing of the committee.
According to him, the goverment is particularly concerned about the need to ease up the lockdown, so that businesses can come upstream.
He said that part of what he spoke about was to allow trade taxation and the other things because government must drive revenue to be able to meet even overheads of his management and personnel costs.
He said, “We have been dependent on oil and we can see disruption that has happened with regards to our earnings in the oil and gas sector. The benchmark we had for the budget as totally be distorted. Now what we have is determined by market forces, how we sell what quantity we sell is totally beyond us. So there is a major decline in government revenue.
“The VAT is a component of government revenue. Taxes either income tax or company Tax are all parts of government revenue. The increase from 5 percent to 7.5 percent was just brought in to application in February of 2020 all in an attempt to ramp up resources to meet our 2020 budget and into the future.
“Let me explain even the sharing formula for VAT or whatever is done through the value-added tax. Only 15 percent goes to the federal government. 85 percent is shared between the states and the local governments.
“So if you reduce VAT and couple with a decrease of income that comes into the Consolidated Revenue fund of the Federation, why are states at the end of the month gather to share through the Federation account allocation committee? There will be crisis. I can tell you that will be crisis,” Mustapha said.
He said that whatever is needed to be done in terms of rigorous, elaborate and extensive collection of revenue must be done to be able to compensate for the losses that are coming in as a result of the downtown in the nation’s earnings with regards to oil and gas.
He added, “And mostly VAT is always on luxury items. Most of the essential items are VAT exempted like drugs, sanitary things.
Basic consumer goods are exempted from VAT. VAT is always related to luxurious consumptions.
“So I think as much as possible I am not sure I want to advise at this stage for us to consider a reduction in the 7.5 percent VAT because that will really eat in to the earnings of the states and the local governments. Somebody alluded to the fact that salaries are not even been paid. So a major reduction who regards to our sources of earning will further deepen that crisis.”
He said that the nation must therefore find a balance now to try as much as possible to maintain some bit of economic and physical stability in the system so that the interest and the earnings of the people is not jeopardized.
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