Forecast VAT rise from 7.5% to 15% to fund deficit
The Nigeria Federal Government is forecast to have to raise the standard Value Added Tax rate from the current 7.5% to 15% by 2027. This is based on the country exceeding its own legal constraint of a maximum budget deficit of 3% per annum. The deficit is now above 4% and not expected to fall soon.
The country is struggling with high inflation, dwindling FX reserves and shaky naira currently. The Economics Intelligence Unit (part of The Economist newspaper) is making the forecast consumption tax rise as Nigeria has one of the lowest VAT rate in the West Africa region:
- Cameroon – 19.5%
- Chad – 18%
- Niger – 19%
- Benin – 18%
Feb 2020 VAT rise from 5% to 7.5%
Nigeria implemented a rise in its standard Value Added Tax rate from 5% to 7.5% on 1 February 2020. This rise had originally been scheduled for January. There are no reduced VAT rates in Nigeria.
To help support smaller businesses, a VAT registration threshold of NGN 25million (approx. €52,000 or $61,000) per annum. FIRS, Federal Inland Revenue Service, also increased the penalty for late filing of returns to NGN 50,000 for the first month and NGN 25,000 for each subsequent month of default.
VAT on non-resident digital services
In addition, Nigeria VAT on foreign digital services will be implemented in January 2021. There will be VAT registration threshold. VAT Calc’s global VAT and GST on digital services blog keeps a live update on how countries are imposing indirect taxes on non-resident providers and electronic marketplaces.
Nigeria’s rise takes its VAT rate closer to the West African average of 18%. The key point of those against an increase in the VAT rate has always been the high poverty rate in the country. As at 2018, over 86 million Nigerians (46.7% of the population) are reputed to be living below the poverty line, defined as earning less than $1.90 per day. Therefore, any increase in consumption tax would effectively impact these people more, and might even be the basis for many more people to move below the poverty line.
