The federal government has said that the new Value Added Tax (VAT) reform will not increase inflation contrary to fears being expressed in some stakeholders.
The Chairman of the Presidential Tax Reform Committee, Taiwo Oyedele made the clarification in an explainer seen by THE WHISTLER.
Oyedele said, “Some people have expressed the view that the proposed VAT rate increase as part of the Tax Reform Bills will fuel inflation and lead to more hardship for the people.
“No. The VAT reform, including the proposed increase in VAT rate, is part of a package involving several measures designed to reduce, NOT increase prices and therefore will not lead to inflation.”
The chairman said unlike the 2019 VAT rate increase which was not accompanied by measures to reduce costs, the current proposal is a package of reform, which is much broader than just a rate increase.
According to him, the reform involves several measures to reduce production cost, reduce the incidence of VAT on most essential consumptions, and exempt more small businesses from charging VAT.
He explained that inflation occurs when there is a general increase in the prices of goods and services.
“The proposed VAT reform is not just about increase in rate, it contains several proposals to eliminate VAT or reduce rate which altogether is unlikely to cause inflation.
“Specifically, the VAT reform measures include a reduction in the VAT rate to zero per cent and exemption for essential items accounting for 82 per cent (about 4 out of 5 items) consumed by the masses including food, medical services and pharmaceutical products, tuition and other educational expenses, transportation, fuel products, and rent. (See the Consumer Price Index basket of goods and services).
“Businesses will be granted tax credits for VAT paid on their assets and all expenses incurred to produce VATable goods and services. This means up to 7.5 per cent reduction in the cost of production compared to the 2019 proposal where companies were not allowed to claim tax credit for their VAT costs which they then passed on to customers by way of higher prices.
“This proposed measure will eliminate the VAT cost currently borne by businesses and should therefore lead to lower prices. Going forward, this measure will ensure that businesses in Nigeria no longer bear VAT cost regardless of the rate.
“An increase in the VAT exemption threshold for small businesses from N25m to N50m. This will remove the VAT burden on the margin of goods and services sold by such businesses who are usually patronised by the masses.
“An increase in VAT rate on a limited number of goods and services constituting only 18 per cent (about 1 in 5 items) of average consumption items in the inflation basket such as beverages, entertainment, cars, etc. These items are consumed more by the middle and high income earners than the poor.”
VAT Reform Will Not Increase Inflation, Says FG is first published on The Whistler Newspaper