The Federal Executive Council (FEC) on Wednesday approved the proposed increase of Value Added Tax (VAT) from 5% to 7.2%.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, disclosed after FEC meeting in Abuja.
The minister, however, noted that until the National Assembly approved the increment it is just a proposal.
“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 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,” the minister stated.
“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.”