[Nigeria] 50 percent VAT Increase to pay new minimum wage

VAT will increase by 50 per cent in order to cover Nigeria’s new national minimum wage, Premium Times reports.

Udo Udoma - Budget and National Planning Minister - confirmed the plan as he addressed the Senate Committee on Finance. The rise was initially announced by Babatunde Fowler, the chairman of the Federal Inland Revenue Service.

The two men were called before the Senate committee to speak about the 2019-2021 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).

The bill, already passed by The House of Representatives, was passed for a third reading by The Senate. Both houses must agree before the president can sign it into law. It seeks to increase the N18,000 minimum wage to N30,000.

Mr Udoma explained why the increment, and the VAT rise to support it, are necessary, “It will be recalled that as a result of agitations from the unions that the President set up a tripartite committee to look at the Minimum Wage.”

He went on, “Every five years, it is supposed to be reviewed. It has not been reviewed even though there is no doubt that for both the Federal Government and states; it is a tough time to review wages. But the N18,000 is really too low and it is difficult for people to live on N18,000.

Mr Fowler said the increment will affect the Company Income Tax and the Petroleum Profit Tax, “By the end of this year, we should be ready for an increase in the VAT. A lot of Nigerians travel to Ghana and other West African countries and they can see that theirs is much higher. They pay when they go for those trips. We should be ready for an increase on VAT.”

“I can certainly see an increase in VAT of at least 35 per cent to 50 per cent this year based on our enforcement activities. There certainly will be an increase in Company Income Tax and also on Petroleum Profit Tax,” he continued.

Mr Udoma also clarified what the bill means for workers earning above the minimum wage, “On minimum wage, there is an issue of what about the other levels. Those will be subject to negotiation. Normally after you announce minimum wage, you’ll now (go) into negotiations, probably demands from people who are earning more than that.

“It will be subject to those negotiations. Federal government will have negotiation, state government will have negotiations. At this level, we’ll also throw open our books and show in terms of ability to pay will be taken into account.”