A major decision was today taken by the Buhari administration to raise the current 5 percent rate of value added tax (VAT) by 50 percent.

The increase, when approved by the National Assembly, will leave the new rate of VAT at 7.5 percent, a move that will inevitably shoot up costs of goods and services in Nigeria for consumers.

The decision to raise VAT has been in the making for decades, since the tax reforms initiated by the Obasanjo administration in 2003. It has however been shelved each time it was proposed as its full effects on the consumers, who bear the final burden are considered.

Zainab Ahmed, Minister in charge of Finance, Budget and National Planning, announced the approval of Buhari’s Federal Executive Council – the highest policy making organ in the country – to raise VAT, after today’s meeting chaired by the President Buhari.

She was not forthcoming on what has changed in the economy that has created the condition for its implementation this year.

She stated, however, that because VAT is a law, the decision of the federal government would have to given a stamp of approval by the national assembly through the amendment of the VAT Act, 2004.

Implementation of the measure will therefore not start until the law is amended. The government also set a date for 2020 to implement the new rate.

Ahmed also announced the cabinet decision to sensitize states, local governments and other stakeholders  on the approved increase.

The value added tax was amended in 2004 and is calculated as a flat rate of 5% on all goods and services sold in Nigeria as stipulated in section 4 of the Act. It is one of the many indirect taxes that government has used to generate income.

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