- Income tax, electricity tariff to go up
- We have the lowest VAT rate in Africa – Experts
Nigerians will henceforth pay more in taxes while electricity rates will also go up in the course of the year as a new law signed by President Muhammadu Buhari to boost revenue for government comes into effect.
The president yesterday signed the 2020 Finance Bill into law at the Presidential Villa in Abuja. This is coming nearly two months after the National Assembly passed the bill and forwarded it to the president for assent in November 2019.
The law has paved the way for an increase of the Value Added Tax (VAT) from five per cent to 7.5 per cent.
Daily Trust reports that the 2020 Appropriation Act amounting to N10.59 trillion ($35bn) is also based on the new VAT rate.
Experts varied on the implication of the new charges with some saying more money for government will boost the economic potentials of the country and others saying the poor people are already overburdened.
A statement yesterday by the Special Adviser to the President on Media and Publicity, Femi Adesina, said with the assent, there will be more revenue to finance key government projects especially in the areas of health, education and critical infrastructure.
Buhari had first announced the signing for the bill into law through his Twitter handle @MBuhari saying the bill was vital to the implementation of the 2020 Budget.
The taxes that will witness noticeable increase include VAT, the Corporate Income Tax, and a plan to reintroduce tollgates taxes.
The new law also stipulates that customers must present their Tax Identification Number (TIN) before they would be allowed to carry out any transactions through banks.
The new law also amended the Petroleum Profit Tax Act, Customs and Excise Tariff Act, Personal Income Tax Act, VAT, Stamp Duties Act and the Capital Gains Tax.
Electricity tariff may rise in first half of 2020
Economists contacted to comment on the new development say the increase in VAT and other taxes would cause discomfort to many Nigerians as the prices of goods and services will most likely skyrocket.
On raising electricity rate from April 2020, the Nigerian Electricity Regulatory Commission (NERC) and the power Distribution Companies (DisCos) recently rolled out the tariff order which will be implemented by the first half of the year. Analysis of the documents showed that on the average, the increase is between N15 to N20 for all the DisCos.
However due to the shock this electricity rate could create, sources privy to the dealings of the tariff hike plan told one of our reporters that the Nigerian Electricity Regulatory Commission (NERC) recommended gradual increase starting from April (to be announced in the June tariff review).
The Minister of Power, Engr. Sale Mamman, had in a recent interview with Daily Trust said power supply was now private sector driven and that there was need for tariff that could cover production cost of electricity.
Communication tax underway in Nigeria
Daily Trust reports that there are moves to have legislative action to impose a 9 per cent tax on communication services. The communication service tax shall be levied on electronic communication services like voice calls, SMS, MMS, data usage both from telecommunication services providers and internet service as well as pay per view TV stations.
The federal government has also announced plans to ensure the return of toll gates on federal highways in the country, but experts believe it will result in increase in transport fare across the country.
Ovations, knocks greet new tax regime
Analysts spoken to yesterday said the increases may be good for government’s revenue base. They, however, observed that the increase would negatively affect the income of average Nigerians, especially if the taxes were not judiciously utilised.
Speaking with Daily Trust, Sarah Anyanwu who is a Professor of Development Economics, University of Abuja, said the increase would automatically lead to hardship because the level of the increase is not commensurate with the salary increment for civil servants (minimum wage).
Prof. Anyanwu, who is also the President of Nigerian Economic Summit (NES), said Nigerians have doubts as to whether government will judiciously use the money that would accrue.
A research consultant to ECOWAS, Prof. Ken Ife, in a telephone interview said, “We have the lowest VAT in Africa at 5%. The average is 15% in Africa. Ghana is even 17%. It is higher in many countries.”
However, Prof. Ife expressed concern over its effect on consumables. “The worry about that increase is to make sure we protect the poorest people by not putting tax on foods and medicines so that we don’t weaken poor people in our community. That is why I’m advising the government to exempt them from the VAT increase,” he said.
Another respondent, Audu Aliyu, backed the new tax regime saying, “The capital gain tax reform is also going to encourage Nigerian ownership of businesses which is a good thing. This will curtail capital flight as most foreign companies tend to repatriate their profit abroad which is not good for the economy.”
The Executive Director, Nigeria Private Sector Alliance, Barr. Legborsi Nwiabu, advised that the new taxes be used appropriately to impact on Nigerians. “Nigerians particularly the private sector don’t want a situation where they will pay tax and still be running on generators,” he noted.
Dr. Bongo Adi, an economist and lecturer at Lagos Business School, said the corporate income tax in Nigeria is less than one per cent.
“Our tax is not up to 5 per cent of our GDP at this moment because the tax steak is still small. Those in the tax book, organizations and individuals still remain small. Of course, the argument still remains that you can’t tax poverty. People are poor, disposable income is still quite low. Nigeria’s economy is predominantly informal,” he noted. Adi said the exemption of businesses with below N25 million turnover from the tax net was a good incentive from the federal government.
His worry is that there are more challenges outside the finance law which make any tax increase a burden.
On presentation of TIN before bank transactions, Mr Adi said, “The requirement of an evidence of paying tax (TIN) before transactions in a bank is good. Tax is about citizens’ responsibility which gives them the right to demand accountability.”
The Lagos Chamber of Commerce and Industry (LCCI) also commented on the tax regime. The Director-General, Dr. Muda Yusuf, said the new law may favour small businesses but the VAT increase may have adverse effect on consumers who will bear the increment.
It is not good to pay more on electricity
President of the Nigeria Power Consumers Forum Mr. Kunle Kola Olubiyo, told one of our reporters that the planned increase in electricity tariffs coupled with those for taxes may lead to hyper-inflation.
Olubiyo advised that NERC should first tackle the liquidity crisis, the poor governance structure and accountability issue. He also called for the effective metering of consumers and improvement in customers services by the DisCos to enhance customer satisfaction.
Employers caution FG over tax hikes
The Nigeria Employers’ Consultative Association (NECA) on its part said the president meant well for the country but that caution must be taken.
The Director-General of NECA, Dr. Timothy Olawale, said government should not see the private sector as a “cash cow” in its drive to raise revenue, noting that the move will do more harm to the already burdened sector and further impoverish citizens than lifting them out of poverty.