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FG Raises Value Added Tax by 50% to 7.5%

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  • FG Raises Value Added Tax by 50% to 7.5%

The Federal Executive Council (FEC) has approved a proposed 50 percent increase in Value Added Tax (VAT) on Wednesday despite experts advising against such move given current headwinds.

The Minister of Finance, Budget and National Planning, Hajiya Zainab Ahmed, disclosed this on Wednesday.

According to her, the FEC approved a 2.5 or 50 percent increase in VAT to 7.5 percent from the current 5 percent.

The minister, however, noted that until the National Assembly approved the increment it is just a proposal.

“We also reported to Council and the Council has agreed that we start the process towards the increase of the VAT rate. We are proposing and Council has agreed to increase the VAT rate from five percent to 7.5 per cent.”

The ministry of finance and Federal Inland Revenue Service (FIRS) had complained that Nigeria’s tax revenue to gross domestic product remains low compared to other African nations.

Tax revenue recently rose from 6 percent to GDP to about 7 percent, still below 15 percent target of the Federal Government.

“This is important because the federal government only retains 15 per cent of the VAT, 85 per cent is actually for the states and local government and the states need additional revenue to be able to meet the obligations of the minimum wage. “This process involves extensive consultation 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,” the minister stated.

“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 statutory 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.

“The states and the local governments are expected to receive N3.04 trillion and N2.27 trillion respectively.”

At Investors King, we think while it is imperative to up revenue generation, it is also cogent to sustain and up consumer spending – a key driver of the economy. A 50 percent increase in VAT would hurt the effectiveness of the recently increased minimum wage and further erode the already weak household income.

All central bank’s policies, 60 percent LDR, the new limit on bank’s investment in fixed income market, financial inclusion program etc, point to aggressive growth through a broad-based economic stimulation and job creation. Therefore, an uncomplimentary fiscal measure would impede growth through weak retail sales (consumer spending) as income and savings would drastically drop despite an increase in the minimum wage.

Also, the financial inclusion program of the Central Bank of Nigeria will take backstage amid a drop in savings.

Nigeria’s unemployment remained high at 23.1 percent and with a 50 percent increase in VAT that number is likely to surge even further as businesses will hold off on recruitment in the near-term.

Reducing interest rate while increasing the number of taxpayers would have effectively complement CBN’s efforts — enhance economic productivity, boost job creation, increase consumer spending and support wage growth.

The VAT increase was edited from 2.2 percent or 44 percent of 5 percent to 2.5 percent or 50 percent of 5 percent.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market.

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Economy

Oil Prices Decline on Rising COVID-19 Cases

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Global Oil Prices Dipped on Friday as New COVID-19 Cases Jump Globally

Global oil prices decline on Friday as the number of confirmed COVID-19 cases surged across the world.

Brent crude oil, against which Nigerian oil is priced, declined from $43.47 per barrel it traded on Thursday during the Asian trading session to $41.60 per barrel on Friday at around 11:39 am Nigerian time.

global Oil prices While the price of US West Texas Intermediate (WTI) crude oil dipped from $40.97 per barrel it traded on Thursday to $38.78 on Friday.

Oil traders and investors are worried that the rising number of COVID-19 new cases would disrupt demand for the commodity and force refineries to shut down once again.

“I do not suspect many oil traders will be looking to place significant bids in the market today, suggesting prices may continue to wallow into the weekend,” said Stephen Innes, chief global markets strategist at AxiCorp.

Despite efforts by both OPEC plus and other top oil producers to halt falling oil prices and reduce global oil glut, the lack of a cure for COVID-19 remained global concerns.

As previously stated on this platform, until a cure is found the world would have to find a way to either work through COVID-19 or shut down activities completely.

This is coming a day after the Federal Government of Nigeria announced that it was putting school resumption plan on hold following the latest COVID-19 report that shows Nigeria’s confirmed cases crossed 30,000 on Wednesday.

In the United States, more than 60,000 new COVID-19 cases were reported on Thursday, forcing lawmakers to start contemplating the second phase of COVID-19 lockdown.

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Economy

We Are Losing N13.9bn Monthly Because FG Caps Tariff – Discos

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Discos Says it is Losing N14bn Monthly Because of NERC Capped Tariff

The Nigerian power Distribution Companies (Discos) have said they a losing N13.9 billion in revenue every month because the Nigerian Electricity Regulatory Commission, limited how much they can charge for consumption.

Ernest Mupwaya, the Managing Director, Abuja Electricity Distribution Company, made the statement during a presentation on behalf of the Discos to the House of Representatives Committee on Power.

The statement was after the Discos demanded realistic indices before the implementation of the proposed service reflective tariff, which was supposed to be implemented on July 1.

Mupwaya said there were some outstanding requirements before the service reflective tariff could be implemented.

“One of them is the removal of estimated billing caps. The financial impact of the Capping Order is an average loss of N13.9bn monthly, thereby, undermining or jeopardising the minimum remittance requirement,” Mupwaya stated.

The July 1 service tariff implementation was halted by members of the National Assembly, who prevailed on the Discos to shelve the date to the first quarter of 2021 due to the current economic challenges in Nigeria.

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Economy

Gbajabiamila Says Nigeria Can’t Compete in AfCFTA With Weak Industries

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Nigeria Must Ramp up Industrialisation to Prevent Dumping by Other Nations

The Speaker of the House of Representatives, Femi Gbajabiamila, has said the nation can not compete effectively in the African Continental Free Trade Area (AfCFTA) with weak industrialisation and manufacturing activities.

Gbajabiamila disclosed this while receiving Adesoji Adesugba, the newly appointed Managing Director of the Nigeria Export Processing Zones Authority.

The details of the visit were made public on Thursday in a statement titled, “AFCFTA: House Speaker tasks Nigeria on industrialisation through free trade zones.”

Gbajabiamila was quoted as saying “We must act proactively so that we don’t become a dumping ground for other African nations.

“Our best option in this circumstance is to immediately set machinery in motion to ensure the effective functioning and flourishing of our export processing zones.

“We must remove all bottlenecks and perfect all stumbling blocks. We will then be fully prepared for AfCFTA and also generate massive jobs for our unemployed youths and enhance our foreign earnings.”

He added that the nation must as a matter of national emergency ramp up industrialisation through free trade zones and other effective means to compete with South Africa, Africa’s most industrialised economy and other African nations.

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