VAT INCREASE IN NIGERIA: WHAT IS THE CURRENT VAT?
VAT stands for value added tax. Put simply, VAT is a consumption tax levied on a product at every stage of processing or value addition. Thus, consumers or recipients of product and services pay VAT. VAT increase in Nigeria is what the government would like to see come through. The argument has been that Nigeria with VAT figure of 5% value of services is one of the lowest in the world.
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VAT INCREASE IN NIGERIA: HOW MUCH IS PROPOSED FOR 2020?
Zainab Ahmed, the immediate paste minister of finance, has disclosed government plans to raise value-added tax to 7.5% by 2020. This revelation was made while she was speaking on the side-lines of the on-going Bloomberg Emerging and Frontier Forum in London. According to the minister, the rise will help federal government improve revenue generation.
“We have developed a strategic revenue growth initiative, which we have started implementing,” she said.
“Our target is to increase revenue to 65 per cent minimum in 2019 so that in the next three years, we are able to attain 80-85 per cent of our revenue target.
“We are looking at adding value-added tax from 5% to 7.5%. 5% is one of the lowest VAT s globally.
“We recently increased the minimum wage and one of the agreements we had with labour was that there would be some marginal increase on VAT to enable us to handle the incremental cost of increasing wages.”
The ex-minister believes VAT increase in Nigeria would be used to finance environmentally sustainable projects.
VAT INCREASE IN NIGERIA: MORE DUTY LOOMING
How does VAT increase in Nigeria relate to import duty you might ask? Let’s look at the impact of VAT increase in Nigeria on import duty with a typical import. Assuming you are the importer of a used Toyota 4runner car from USA to Nigeria, the following breakdown gives the import duty payable for your car:
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2006 USED TOYOTA 4RUNNER DUTY BREAKDOWN AS A CASE STUDY
Ex-factory Value = USD8790 (this value is given by the valuation unit of Customs and is irrespective of what’s your invoice.
Duty Rate = 35% For Used Car (Plus 5% Vat)
IMPORTING OR EXPORTING TO NIGERIA?
-PRICE VERIFICATION SYSTEM (PVS)
-SON PC/SONCAP PROCESSING
-FORM M AND PAAR PROCESSING
-INVOICE, CCVO, PACKING LIST, AND OTHER DOCS
-PICKUP AND SHIPPING
-SEAFRIEGHT CLEARANCE AND DELIVERY TO FINAL DESTINATION
-AIR CARGO CLEARANCE AND DELIVERY
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Exchange Rate = 326/1 (NGN/USD)
Surface Duty (Id) = 35%*8790*326 = NGN1,002,939.00
Surcharge (7%) = 75*Ngn1002,939 = NGN70,205.73
ECOWAS Levy (0.5%) = 0.5%*8790*326 = NGN14,327.7
Vat ( With 5%) = 5%*(1,002,939.00 + 70,205.73 + 14,327.7) = NGN54,373.21
Total Duty = Id + Surcharge + ETLS + Vat = NGN1,141,845.00
If the VAT changes to 7.5%, the overall import duty is impacted.
VAT (with 7.5%) = 7.5%*(1,002,939.00 + 70,205.73 + 14,327.7) = NGN81,560.43
Total Duty = Id + Surcharge + ETLS + Vat = NGN1,169,032.00
Difference in Duty (7.5% -5%) = NGN27, 187.00.
This is a huge difference if the car is more than one.
HOW TO PAY CUSTOMS DUTY
- It shall be the duty of the importer’s bank through which the e-Form M was processed to collect the amount of import duty as assessed, if it is a Designated Bank. However, for e-Form M transactions processed by non-Designated Bank, payment of import duty shall be at any of the Designated Banks, while a copy of the duty payment receipt shall be made available to the processing bank by the importer.
- For transactions in respect of dutiable personal effects payment of duty can be made at any preferred Designated Bank.
- The Designated Bank will match printed assessment notice with the electronically received assessment notice for the Single Goods Declaration (SGD). If the information tallies, the bank will receive payments and issue signed Bank receipt.
- The designated bank shall send an e-confirmation message to NCS acknowledging receipt of duty and taxes in respect of the SGD.
- All payments shall continue to be electronically transferred daily by Designated Banks to the respective pool accounts with CBN, failing which necessary sanctions shall apply
The above information is excerpt from Nigeria Customs website.
VAT increase in Nigeria would have a corresponding increase in the overall duty payable by importers. This article is written to prepare minds of importers on what is expected in matter of months. We hope to have informed you well. Furthermore, feel free to contact for any import or export issue, using our contact page.