Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed

The Federal Executive Council, Nigeria’s highest policy decision making body on Wednesday approved a new rate of 7.2 per cent for the Value Added Tax for the country, up from the current five per cent, which has been in operation for about 35 years.

Meanwhile, no date has been fixed for the takeoff of the new tax rate.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, who spoke with State House Correspondents after the FEC meeting in Abuja, said consultations are ongoing as to when the new rate would commence.

She explained that stakeholders, including the National Assembly and the states, would have to agree on the date.

The minister stated that the VAT Act would also have to be amended by the National Assembly before the take-off date of the new rate, which she said could be sometime in 2020.

She said, “We also reported to council and council has agreed that we start the process toward the increase of the VAT rate. We are proposing that VAT rate be increased from the current five per cent to 7.2 per cent and council has agreed to the increase. This is important because the Federal Government only retains 15 per cent of the VAT; while 85 per cent is actually for the states and local governments. The states need additional revenue to be able to meet the obligations of the minimum wage.

“This process involves extensive consultations that need to be made across the country at various levels and also it will involve the review of the VAT Act. So, it is not going to be implemented immediately until the Act is reviewed.

 Recall that the idea of introducing VAT in Nigeria came from the study group set up by the Federal Government in 1991 to review the entire tax system in the country, which proposed the introduction of VAT.

A committee was subsequently set up to carry out feasibility studies on its implementation. In January, 1993, the then Federal Government agreed to introduce VAT by the middle of the year. It was later shifted to September 1, 1993 by which time the relevant legislation would have been put in place and proper ground work done.

However, the actual implementation however, did not commence until January 1994 following the promulgation of the Value Added Tax Decree No. 102 of 1993 to replace the Sales Tax.