Published On: Thu, Sep 12th, 2019

FEC raises VAT to 7.2 percent, proposes N10.07tr 2020 budget

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By Lawrence Olaoye

In a bid to raise the nation’s revenue base to meet up with its increased financial obligations, the Federal Executive Council (FEC) has approved an increase in the Value Added Tax (VAT) from 5 percent to 7.2 percent.
Briefing newsmen after the maiden Council meeting chaired by President Muhammadu Buhari, Minister of Finance and National Planning, Zainab Ahmed, said the government is currently consulting with states and local governments on the issue and the implementation will start next year.
According to the minister, the Council also approved the sum of N10.07 trillion as appropriation proposal for the 2020 fiscal year.
The minister said: “We also reported to council and council has agreed that we start the process towards the increase of the VAT rate. We are proposing and council has agreed increase in the VAT rate from five percent to 7.2 percent. This is important because the federal government only retains 15 percent of the VAT, 85 percent is actually for the states and local government and the state need additional revenue to be able to meet the obligations of the minimum wage.
“This process involves extensive consultations that needs to be made across the country at various levels and also it will involve the review of the VAT Act. So, it is not going to be implemented immediately until the Act is reviewed.
“So accordingly, following these assumptions the total revenue estimate in the sum of N7.5 trillion for the year 2020 and N2.09 trillion that will be accruing to the Federation Account and the VAT respectively.
“There will, of course, be the distribution to the three tiers of government based on the statutorily revenue sharing formula as defined in the constitution and to this effect, it means the federal government will be receiving proposed aggregate of N4.26 trillion from the federal account and the VAT pool, while the states and the local government are expected to receive N3.04 trillion and N2.27 trillion respectively.
On the 2020 budget proposal, she said “The expenditure for the year 2020 is in the total sum of N10.07 trillion. This is three percent less than the approved expenditure in the 2019 budget that has been passed into law. The total expenditure includes statutory transfers, non-debt recurrent expenditure such as salaries and pensions and also the Social Intervention Programme.
“The 2020 budget has a debt service estimated at N2.45 trillion and a sinking fund to retire maturing obligations issued to local contractors and other creditors in the sum of N296 billion. So, there is a total sum of N3.43 trillion that is provided for personnel and pension cost inclusive N218 billion for the top 19 government owned enterprises in the country. This represents an increase of N453 billion over the 2019 approved budgetary expenditure. This also implies a 40 percent of this recurrent expenditure to the projected revenue.”
She continued, “The budget deficit is projected at N2.15 trillion in the year 2020 and this is lower than what was approved in the 2019 budget which was N2.47 trillion.
“Let me state that these projections include draw downs on project-tied loans and this represent 1.51 percent of estimated gross domestic product (GDP). This is well below what is allowed by the Fiscal Responsibility Act of 2007 which is still put at three percent.
I want to add that council approved our presentation and so the next phase for us is to consult with the National Assembly and then send the Medium Term Expenditure Framework (MTEF) to the National Assembly for their own view and subsequent approval.”
Minister of Transport, Rotimi Amaechi, told newsmen that the Council “approved the revised estimate total cost for the rehabilitation of Itakpe/Ajaokuta Rail line. The contract was awarded $122 million but we requested for a total of $56 million additional works which were broken down into $38.8 million additional works and 17.2 million variation now bringing the contract of Itakpe to Warri to a total of $178.7 million.
Then we also requested for Lagos to Ibadan with extention to Lagos Ports Complex in Apapa. We asked for additional works for $374 million with another variation of $282 million which totalled to $656.8 million added to $1.5 billion that the contract was initially awarded.”
Minister of State for Works and Housing, Abubakar Aliyu, gave breakdown of road projects approved the extension of Lagos-Badagry expressway project to Benin-Nigeria border at N15.2 billion
The 14 other roads projects approved by the Council include two bridges in Kontagora in Niger State at N1.1 billion; Kano – Katsina road N9.4 billion; Kontagora-Bangi road Niger State N20.3 billion; Marina-Bonny camp road, Lagos State at N9.2 billion.

Others include roads in Edo State road N4.5 billion; Kwara road N18.4 billion; Kano State road N2.5 billion; Taraba State road N12.3 billion; Niger State road N10.6 billion; Jigawa State road N25.3 billion; Aba – Owerri road N6.98 billion; Yobe State road N16.9 billion; FCT road N17.3 billion and Imo-Anambra states road N12.7 billion.

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