Talk of higher indirect taxes - VAT now in the mix?

Proshare

Tuesday, August 11, 2015 8:55 AM / FBN Capital Research

The acting head of the Federal Inland Revenue Service (FIRS) was yesterday quoted in the local media as proposing to double the rate of VAT to 10%. It is unclear on whose authority Sunday Ogungbesan was speaking.

 

We are aware of pledges by the presidential circle not to raise companies’ income tax (CIT) and other direct levies but not of any such commitment on VAT.

 

Among reasons for an increase, we point to relatively low administrative costs for the FGN since the burden of collection falls upon providers of eligible goods and services, and to the steady revenue stream throughout the year (unlike CIT, for example).


The VAT pool, which is projected at N841bn in the 2015 budget, is shared according to the 15/50/35 formula between the federal, state and local governments.


A doubling of the rate would bring relief to the hard-pressed state governments, which are to benefit from an effective write-off of their borrowings from the banks and from a planned CBN intervention fund.


A doubling from January would also have trimmed the projected FGN deficit.


Gross non-oil revenues amounted to just 3.8% of GDP in 2014. We would support an increase in VAT provided that it did not become a substitute for the pursuit of unpaid and underpaid taxes and levies across the economy.



At the same time, we are convinced that the plugging of fiscal leakages would have a greater fiscal impact in the next 18 months than tax rises.

Estimates of N3trn for leakages from the annual budget from the Buhari group soon after the elections were unduly high because they are not all recoverable. That said, they have value for the message they send.

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