The Federal Executive Council (FEC) on Wednesday approved a proposed increase of Value Added Tax (VAT) from 5% to 7.2%.
The Minister of Finance, Budget and National Planning, Hajiya Zainab Ahmed, made this known when she briefed State House correspondents on the outcome of the meeting of the Council which was presided over President Muhammadu Buhari.
The minister, however, stated that 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 percent.
“This is important because the federal government only retains 15 percent of the VAT, 85 percent 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 statutory 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,’’
She also disclosed that the Council approved N10.07trillion 2020 Budget proposal for onward transmission to the National Assembly for consideration and approval.
She revealed that the Council also approved the Medium Term Expenditure Framework 2020 to 2022, which would guide the 2020 Budget.
She revealed that the Council approved the Medium Term Expenditure Framework and Fiscal Strategic Paper (MTEF/FSP) for 2020 to 2022, which would guide the implementation of the 2020 Budget.
The Minister said the next step was to present the document to the National Assembly for consideration.
“The expenditure for the year 2020 is in the total sum of N10.07 trillion. This is three percent less than the approved expenditure in the 2019 budget that has been passed into law.
“The total expenditure includes statutory transfers, non-debt recurrent expenditure such as salaries and pensions and also the social intervention Programme,’’ she said.
According to her, the 2020 budget has a debt service estimated at N2.45 trillion and a sinking fund to retire maturing obligations issued to local contractors and other creditors in the sum of N296 billion.
“So there is a total sum of N3.43 trillion that is provided for personnel and pension cost inclusive of N218 billion for the top 19 government-owned enterprises in the country.
“This represents an increase of N453 billion over the 2019 approved budgetary expenditure. This also implies a 40 percent of this recurrent expenditure to the projected revenue.
“The budget deficit is projected at N2.15 trillion in the year 2020 and this is lower than what was approved in the 2019 budget which was N2.47 trillion.
“Let me state that these projections include drawdowns on project tied loans and this represents 1.51 percent of estimated gross domestic product (GDP). This is well below what is allowed by the Fiscal Responsibility Act of 2007 which is still put at three percent.
“I want to add that council approved our presentation and so the next phase for us is to consult with the National Assembly,’’ she added.
