The Federal Government has announced plans to increase Value Added Tax, (VAT) on luxury items like champagne from the current five per cent, through the revised National Tax Policy.
Although the implementation of the revised policy would take immediate effect, some aspects that required changes in law would be referred to the National Assembly for action.
Nigerians still pay 5% VAT, which was introduced by the military government in 1994 and is one of the lowest in the world.
Minister of Finance, Mrs. Kemi Adeosun, disclosed this to State House correspondents at the end of the Federal Executive Council meeting on Wednesday, 1st February, 2016.
Adeosun said Nigeria was one of the countries with the lowest Gross Domestic Product tax ratio in the world, and that non-payment of tax was one of the biggest factors that contributed to the nation’s current economic situation, hence the need for the revised policy.
In implementing the new policy, the minister said the government would attempt to reduce the number of taxes with emphasis on indirect taxes, as well as centralizing tax administration where possible. In her words;
“What the committee has shown is that we should look at actually increasing VAT on some luxury items. With VAT of five per cent, we have the lowest VAT. While we don’t think VAT should be increased on basic items, if you are going to drink champagne in the United Kingdom, the VAT is 20 per cent; so, why should it be five per cent in Nigeria?
So, they have made recommendations that we should pull out some luxury items and increase VAT on those items immediately. And I think that is a very valid and sensible suggestion, which we are going to talk to the National Assembly about to see how we can implement it.
But as far as basic goods are concerned, no. I believe it is only fair that when you consume luxury goods, you should pay a little bit more. The National Assembly will decide the percentage.”
She further explained that the objectives of the revised policy included to guide the operation and review of the tax system; provide the basis for future tax legislation and administration; provide clarity on the roles and responsibilities of stakeholders; and standard benchmark on which they would be held accountable.
In implementing the policy, Adeosun stated that an office of tax simplification would be established; a tax policy implementation committee would be set up; only one revenue agency per level of government would be allowed; the Independent National Electoral Commission to mandate political parties to articulate their tax agenda during election campaigns; and the establishment of administrative framework for amnesty and whistle-blowing, among others.
Others are to develop Key Performance Indicators for Nigeria to attain a top 50 on ease of paying taxes by 2020; creation of a dedicated tax policy website; setting aside a uniform day in the year as a National Tax Day; as well as the promulgation of an Act to establish the Joint Tax Board’s mandate beyond its current advisory role.
In 2014, former President Goodluck Jonathan’s administration while unveiling its austerity measures, identified some items that were to be taxed as luxury goods to include champagne, alcoholic beverages, private jets, luxury cars based on engine capacity, and yachts. It had estimated to generate about N480bn from taxes on luxury items in the 2015 fiscal period.