VAT Hike: Prices of goods and services soar

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Mrs Zainab Ahmed, Minister of Finance, Budget and National Planning

Prices of several goods and services in the country have gone up following the implementation of the 7.5 per cent increment in Value Added Tax (VAT) introduced by the Federal Government on February 1, 2010, Business Hallmark findings can revealed.

Findings revealed that while prices of goods in the formal sector only increased by 2.5 percent to reflect the marginal rise in VAT, the increment is having multiplier effect on the informal sector, with many local traders increasing the prices of their commodities despite not being affected by the increment.

It would be recalled that President Muhammadu Buhari had on January 13, 2020, signed the Finance Bill into law after it was passed by the National Assembly on November 21, 2019.

According to the government, the objectives of the Act are to raise revenues for the government by various fiscal measures, including an increase in the rate of Value Added Tax from five per cent to 7.5 per cent; promote fiscal equity by mitigating instances of regressive taxation; reform domestic tax laws to align with global best practices, and introduce tax incentives for investments in infrastructure and capital markets among many others.

In other to ensure that traders do not exploit Nigerians, especially the poor, the Federal Government exempted some essential items from the increased the increment. The products include essential food items like sugar, salt, bread, cereals, cooking oil, fish, flour, fruits, fresh or dried, meat and poultry, milk, nuts, vegetables, natural water and table water. Others are tuition paid by students in nursery, primary, secondary and tertiary institutions.

However, checks revealed that effect of the VAT hike is far reaching. Mostly affected are telecommunications, electricity, air transportation and the banking sectors. Since the new rate was introduced over two weeks ago, telecoms subscribers now pay more for calls and data services.

Shortly before the commencement of the new tax regime, telecoms operators had sent out short statements to subscriber intimating them that purchases of telecommunication products and services will be affected by the implementation of the VAT increase.

With the commencement of the new tax regime, customers now pay N4.10k, an increment of 10k for a Short Message Service (SMS), instead of the N4 they paid for the same service before February 1.  In other words, the government now collects 30k as VAT on every SMS sent, up from the previous 20k.

With the number of active voice subscribers as at the third quarter of 2019 put at 179.17 million by the latest report of the National Bureau of Statistics (NBS), the government is expected to rake in N27.5m per day if just 100million subscribers sent an SMS each.

Like the telecoms sector, the electricity sector is also affected. Checks revealed that the cost of services and products offered by electricity distribution companies operating in the country has gone up.

For example, a R2 customer of the Ikeja Electricity Distribution Company (IEDC) was last week charged N75 VAT for the purchase of N1, 000 worth of energy, unlike before when he was charged only N50. The amount paid will be higher if a customer is on R3, C1 and above.

It was also observed that the cost of procuring electricity prepaid meters has gone up by up to 10%, depending on the distribution company. For example, customers under the network of Abuja Electricity Distribution Company (AEDC) applying for meters under the Meter Assert Programme (MAP) now pay N39, 765.86 with VAT addition of N2, 774.56 for a single phase meter, instead of N36, 991.50 they used to pay. While customers applying for three phase meters now cough out N72, 085.04 per unit with VAT addition of N5, 029, unlike the previous cost of N67, 055.85.

A customer, who complained to the customer unit of the AEDC on phone over the sudden increase in his bill, got a text message reply: “Be advised that the increase is on VAT and not on the unit cost of electricity or meter. VAT only applied on the aggregate cost of energy consumed by the customer per time and the cost of the meter”, the message explained.

In the same vein, customers within the Ikeja Electric network now pay the new price of N39, 765.86 for a single-phase meter, instead of the usual N38, 850, while the three-phase meter now costs N72, 085.68, instead of N70, 350.

BH checks on banks new charges show that electronic funds transfer to other banks below N5, 000 which previously attracted N10.50 (N10 plus 50k VAT), is now N10.75 (N10 plus 75k VAT). Charges on other products like ATMs and stamp duties have also gone up.

Also affected is the maritime sector. All the agencies in the sector, checks revealed, have adjusted upward their charges. Principally, the Nigerian Customs Service (NCS) adjusted the VAT rate upward to reflect the new rate. A clearing agent, Ebunoluwa Jacobs, confirmed the rate adjustment while lamenting the spike in doing business at the ports.

“The VAT rates on all the services in the port have been adjusted. Not just for Customs but other agencies that offer services with VAT attached. For example, a French shipping line, CMA-CGM, has adjusted its rate in compliance with the Federal Government’s directive. We recently paid N75, 000 to haul some goods unlike before when we used to pay N50, 000” for the same service, Jacobs lamented.

Our correspondent also learnt that many media organisations have reviewed upwards their advert rates, while others are on the verge of adjusting theirs.

Meanwhile, the adjustment in the old VAT rate of 5% to 7.5 per cent has continued to have multiple effects on the economy. It was observed that many traders who hardly understand what VAT meant, have increased the prices of food items, blaming it on the increment. According to BH survey across many Lagos markets, prices of many commodities have gone up, with the sellers blaming it on VAT.

At the Agege Market, Lagos, the price of cooking oil, vegetables, shoes and toiletries recorded between 15 and 25 per cent increment. For instance, a 5kg of cooking oil that was sold for N2, 400 in January 2020, now goes for between N2, 800 and N3, 200 depending on the brand.

The prices of kitchen utensils, electronics, and gift items recorded about 12 per cent increment. Likewise, household items like sponge, shopping bags, cooking pots, among others, recorded about 10 per cent increase in price, but the prices of goods like sugar, salt and frozen foods among others were not affected.

Unlike edible goods, prices of building materials have also recorded slight increase to reflect the adjustment in VAT hike. For example, a bag of cement which sold for between N2, 450 and N2, 550 in January now sells for N2, 650. A trader at the Ile-Epo market said the adjustment is VAT has a multiplier effect on goods and services ranging from haulage, transportation and vehicle parts.

However, prices of foodstuffs such as rice, onions, tomatoes and pepper, as well as beans did not record any increase in their prices as a bag of local rice was still between N15, 500 and N19,000, while a bag of foreign rice sold between N23,000 and N28,000.

Commenting on the new VAT regime, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said that the increase in VAT amounts to additional burden on investors and consumers.

“Already businesses have been grappling with multiple taxation, high import duty, high regulatory charges, exclusion from the official forex market and high energy cost.

“It is also disturbing that in Nigeria, VAT is not treated as consumption tax. Most often it is imposed on the entire value chain of production and investment. This is the reason investors will worry about the review,” he said.

The LCCI boss urged government to scale up its commitment to the creation of an enabling environment for investment, adding: “This should be from the perspective of policy, regulatory and macroeconomic environment.”



Source: Business Hallmark

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Author: abokimallamfx