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5% Value Added Tax too low â€“ Osinbajo
Vice President Yemi Osinbajo has described the current five per cent Value Added Tax rate in the country as very low, adding that the Federal Government would increase the taxpayer base this year.
Osinbajo stated this on Thursday in Lagos in a keynote address at the 1st National Forum on the Economy organised by Vintage Press Limited, publishers of The Nation Newspapers.
VAT is a consumption tax payable on goods and services consumed by individuals, government agencies and business organisations.
The International Monetary Fund had last week reiterated its advice to the Federal Government to increase the VAT rate gradually.
The Managing Director of the fund, Christine Lagarde, had in January during her visit to Nigeria, urged the government to increase the VAT rate.
â€œTo move the nation forward, we must move beyond oil. The reality is that while oil accounts for 14.4 per cent of our Gross Domestic Product, it continues to be the source of 90 per cent of official foreign exchange earnings; and prior to this year, up to 76 per cent of government revenues,â€ Osinbajo said.
He said having an easy source of revenue had denied Nigeria the opportunity to engage in critical thinking to develop the economy.
â€œIn order to move forward, we must reduce the current dependence of the federal and state governments on the ritual sharing of revenues from oil. Doing so requires broader and genuine efforts at the diversification of our economic structures in terms of drivers of economic activities. The foundation for a strong economy requires that we have appropriate fiscal policies,â€ the vice president explained.
Noting that the country had a very low rate of VAT of five per cent and a low taxpayer base, Osinbajo said, â€œWe are focused on increasing the taxpayer base in the first instance this year.â€
â€œAt the federal level, implementation of the budget will stimulate the economy rather than impose undue austerity. Accordingly, up to 30 per cent of expenditure has been devoted to capital spending and N500bn for social intervention, which will create jobs directly and indirectly, while also boosting demand.â€
According to him, non-oil sources, comprising mainly Company Income Tax, VAT, and customs and excise duties are expected to contribute about N1.5tn, which is more than oil-related revenue estimated at about N820bn.
â€œThis is unprecedented in a long while in our nation and is a near complete reversal of the previous ratio of oil to non-oil revenues. These are bold and clear indications that the Buhari administration is serious about change,â€ he said.
The vice president noted that the way forward was for the nation to move from reliance on crude oil to the production of petroleum products.
Osinbajo stated, â€œBy this, I mean that instead of merely extracting and exporting crude oil, Nigeria must now take full advantage of the petroleum sector and its entire value chain. This will mean refining our crude before it is exported; it will entail becoming an African regional petrochemical hub.
â€œIt will also require making full use of our natural gas resources domestically and abroad; and it will require that we fully implement local content laws and regulations in the oil sector so as to fully utilise its abundant forward and backward linkages.â€