A senior lecturer at Hussaini Adamu Polytechnic, Kazaure, Dr. Tijjani Ahmad, has said that Value Added Tax (VAT) in Nigeria mainly affects luxury services and not everyday essential items used by ordinary people.
Speaking in an interview on Saturday, Dr. Ahmad explained that VAT is a consumption tax introduced in 1993 and became effective in January 1994.
He said the tax is charged on the consumption of certain goods and services.
According to him, many basic items are exempt from VAT.
These include basic food items, baby foods, medical and pharmaceutical products and services, as well as some educational materials.
“VAT is a tax on consumption of goods and services, but many essential items are exempted so that poor people and those in rural areas are not affected,” he said.
Dr. Ahmad explained that VAT is collected by businesses that are registered as VAT agents. These businesses include VAT in the price paid by customers and remit it to the government.
He noted that VAT was initially five percent but was increased to 7.5 percent during the administration of former President Muhammadu Buhari.
He also explained how the VAT revenue is shared among the three tiers of government. According to him, before the new reform, the federal government received 15 percent, states received 50 percent, and local governments received 35 percent.
“With the new reform, the federal government’s share has been reduced from 15 percent to 10 percent, while states still get 55 percent and local governments retain 35 percent,” he said.
Dr. Ahmad addressed the widespread belief that a new VAT has been introduced on mobile transfer transaction fees. He said this claim is incorrect.
“There is a misconception that VAT on mobile transfer fees has just been introduced. That is not true. It has been in existence,” he said.
He explained that while some banks were already charging VAT on mobile transfer fees and others were not, the government only emphasized compliance and enforcement starting from the 19th of the month.
“The law did not introduce a new tax, it has been in the law. It only emphasized compliance and enforcement. Mobile transfer transaction fees are part of the services that attract VAT,” he added.
On whether VAT has a negative effect on the public, Dr. Ahmad said the issue is debatable.
He noted that while some think VAT can increase the cost of goods and services, but to some no because most items commonly used by poor people or rural people are exempted, only thia mobile transfer charges fees are not exempted.
“From food to shelter to clothing, most basic items are exempted from VAT,” he said.
He further explained that small businesses and companies are also exempted from VAT.
According to him, businesses whose annual revenue does not meet the required threshold are not registered as VAT agents and are not required to charge VAT.
“With the new law, any business with revenue below N100 million per year is exempted from VAT,” he said.
Dr. Ahmad also explained that processed food sold by vendors or roadside sellers does not attract VAT. However, food sold in luxury places does.
“If you buy food from a restaurant or roadside seller, there is no VAT. But if you buy the same food in luxury places like hotels or fast-food outlets, then VAT applies because it is no longer considered a basic or affordable food item,” he explained.
He stressed that the major impact of VAT enforcement is mainly on mobile transfer fees. However, he said the actual amount charged is very small.
“For example, if the transaction fee is N10, 7.5 percent of that is N0.75, which is not even one naira. For N20, it is N1.50, and for N50, it is N3.75. So the amount is not much,” he said.
Dr. Ahmad concluded that VAT mainly targets luxury services and non-essential consumption, while everyday essentials remain protected under the law
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