The Federal Executive Council yesterday approved a proposed increase of Value Added Tax from 5 percent to 7.2 percent.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed this to State House correspondents after the FEC meeting presided over by President Muhammadu Buhari.
She, however, said the VAT Act would have to be amended by the National Assembly first before the increase come into effect.
We also reported to council and the council has agreed that we start the process towards the increase of the VAT rate. We are proposing and Council has agreed to increase the VAT rate from five percent to 7.2 per cent.
This is important because the federal government only retains 15 per cent of the VAT, 85 per cent is actually for the states and local government and the states need additional revenue to be able to meet the obligations of the minimum wage.
This process involves extensive consultation that needs 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.
So accordingly, following these assumptions the total revenue estimate in the sum of N7.5 trillion for the year 2020 and N2.09 trillion that will be accruing to the federation account and the VAT respectively.
There will of course be the distribution to the three tiers of government based on the statutorily revenue sharing formula as defined in the constitution and to this effect, it means the federal government will be receiving proposed aggregate of N4.26 trillion from the federal account and the VAT pool.
The states and the local governments are expected to receive N3.04 trillion and N2.27 trillion respectively.
he minister said the council also approved N10.07trn 2020 budget proposal for onward transmission to the National Assembly for consideration and approval. She said the FEC also approved the Medium Term Expenditure Framework 2020 to 2022, which would guide the 2020 budget.
The expenditure for the year 2020 is in the total sum of N10.07 trillion. This is three per cent less than the approved expenditure in the 2019 budget that has been passed into law.