Nigeria's Wrongheaded Budget

21 October 2019
opinion

I just spent the weekend reading and doing some number crunching on the 2020 budget that was presented by President Muhammadu Buhari to the National Assembly on October 8. Of the five budgets he has presented since assuming office in 2015, this was the earliest to get to the legislature before the beginning of the next fiscal year. It is hoped that with the new record set by his administration and a pliant National Assembly, Nigeria will for the first time in decades revert to the January 1-December 31 budget cycle. This is expected to result in improved budgetary performance and planning not just for the federal government, but also the private sector that is reliant on the government's fiscal policy slant.

One of the highlights of the budget was the reaction that followed the proposed increase in the value added tax (VAT), also known as consumption tax, to be charged on goods and services from 5% to 7.5%. Whilst I can understand the concerns expressed by many that the 2.5% VAT hike will have a deleterious impact on disposal income, is inflationary, and will be disadvantageous for businesses that would have to contend with higher costs arising from their inability to recover input VAT that has already been remitted to the Federal Inland Revenue Service (FIRS), an increase in the VAT rate will, on the other hand, do very little to improve the finances of the federal government.

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