Business

Minimum wage necessitated increase in VAT – Controller

Published

6 years ago

February 16, 2020

By Kingsley Chukwuka, Jos

The challenge in meeting up with the demand to pay the new minimum wage of N30,000, necessitated the increase in the new Value Added Tax (VAT), of 7.5 percent, says the Controller, Federal Inland Revenue Service (FIRS), Plateau State, Mr. Mohammed Gidado.

He said the increment couldn’t have come at a better time than this when the country is faced with insecurity, hence the new rate will help to equip the country’s security agencies to better combat the insurgents.

Gidado stated this at the weekend in Jos, while interacting with some group of journalists.

“The increment came as a result of the demand to increase minimum wage. The States have been given additional responsibility: they need more money to pay salaries. A few years ago the federal government had to come in to bail out some State government to pay even the former minimum wage of 18,000 and now it is 30,000 States are handicap and do not have the capacity to pay.

“Governors came together, met with the federal government and agreed on a source to fund the N30,000 increment and VAT being the only tax shared by State and Local Government, became an option to raise funds to meet the demand”, Gidado said.

The FIRS boss said State government takes 50 percent of the total VAT generated, while Local Government takes 35 percent and the FG takes nothing except for the remaining 15 percent which is actually the cost for collecting the revenue.

“Because of the new minimum wage, it is only normal, that additional source of revenue for the States has to be found. So by increasing VAT, it will enable the State government to pay salaries and still have some money to execute other projects.

“Nigeria is the only country in the world that has the lowest VAT rate of 5 percent. Other countries have increased severally. Some as high as 24-27 percent”, the tax Controller said.

Our correspondent reports that Nigerians started paying 7.5 percent VAT from February 1, 2020, after its increase was captured in the newly approved 2019 financial law.

President Buhari had earlier signed the 2020 Finance Bill into law, increasing it from an initial 5 percent.