Government considers increasing value added tax to 50% in bid to fund new national minimum wage

MINISTER of budget and national planning Senator Udo Udoma has said that the government may likely increase value added tax (Vat) to about 50% to enable it fund the new minimum wage of N30,000 ($62) per month.

Earlier this week, the Nigerian senate passed the new Minimum Wage Bill into law, increasing the pay of the lowest earners from the current N18,000. Faced with the challenge of how to meet the new wage bill, Senator Udoma and Babatunde Fowler, the chairman of the Federal Inland Revenue Service (Firs), said increasing Vat to 50% would enable the government to generate the extra required revenue.

Speaking while appearing before the Senate Committee on Finance, Mr Fowler specifically said that the proposed payable Vat by Nigerians based on the increment would actually be between 35% and 50%. He said that the goal of Firs was to achieve an N8trn ($22bn) revenue generation target this year adding that the 50% increment in Vat will affect Company Income Tax and the Petroleum Profit Tax.

Mr Fowler said: “By the end of this year, we should be ready for an increase in Vat. A lot of Nigerians travel to Ghana and other West African countries and they can see that theirs is much higher but they pay when they go for those trips, so we should be ready for an increase in Vat.

“I can certainly see an increase in Vat of at least 35% to 50% this year based on our enforcement activities. There certainly will be an increase in Company Income Tax and also on Petroleum Profit Tax.”

Senator Udoma also submitted to the committee that the technical advisory committee on the minimum wage, will submit its report to President Muhammadu Buhari this week. He said: “It will be recalled that as a result of agitations from the unions that the president set up a tripartite committee to look at the minimum wage.

“Every five years, it is supposed to be reviewed. It has not been reviewed even though there is no doubt that for both the federal government and states, it is a tough time to review wages but the N18, 000 is really too low and it is difficult for people to live on N18,000."

He added that his ministry will be working closely with the finance committee on how best the minimum wage will be addressed, both by the federal government and the states to ensure that the whole government apparatus is not just paying salaries and nothing else. According to Senator Udoma, it is important that they are able to pay the minimum wage and still have enough resources to do infrastructure.