19 March 2019

Nigeria to Increase VAT to Pay New Minimum Wage

Photo: Pixabay

The Federal Government is to increase Value Added Tax by 50 per cent to pay the new national minimum wage, Bugdet and National Planning Minister Udo Udoma said Tuesday.

Mr Udoma said the raise, first announced by the chairman of the Federal Inland Revenue Service, Babatunde Fowler, will create the required funds to meet the new wage obligation being approved by the National Assembly.

Messrs Udoma and Fowler were amongst senior government officials who today appeared before the Senate Committee on Finance headed by John Enoh.

The Senate on Tuesday passed for third reading a bill seeking to increase Nigeria's minimum wage from N18,000 to N30,000.

The House of Representatives earlier passed the same bill. Both houses must agree and the president must sign the bill to become law.

The officials were summoned by the Senate committee to explain details of the 2019-2021 Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).

Mr Fowler said the proposed payable VAT based on the increment would be between 6.75 per cent and 7.25 per cent as against the 5 per cent on all products in the country.

This implies an increase of between 35 per cent and 50 per cent.

He added that 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," he said.

"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," Mr Foweler said.

Mr Udoma explained that the increment is necessary in order to create funds for the minimum wage.

"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.

"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.

"The President supported a revision but it is important that as we are revising (the Minimum Wage), we make sure that it can be funded. That is why we set up the Bismark Rewane Technical Committee.

"So we will be coming to you. There may be some changes maybe in VAT and other things. But we will be coming to you in order to make sure that we can fund the Minimum Wage.

"Not just fund the Minimum Wage but as you announce it, you now enter into negotiations with those above the Minimum Wage and we have to be prepared for that."

On wages of workers above the minimum wage, Mr Udoma said a new scale would be subject to negotiations which will start soon.

"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 (new wage) 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."

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