The Value Added Tax (VAT) collection is expected to climb from an average of N35 trillion in 2024 to N40 trillion in 2025 and N45 trillion in 2026 fiscal years, according to the Federal Government’s ambitious plans.
The 2024–2026 Fiscal Strategy Paper (FSP) and Medium Term Expenditure Framework (MTEF), which were only available to Nigerian Tribune, included a breakdown of the three-year expected revenue.
The letter that President Bola Tinubu sent to the National Assembly last week states that the vatable commodities and collection efficiency were taken into consideration while projecting the value of the value added tax (VAT). After accounting for exclusions, zero-rated products, and businesses with annual revenue below N25 million, it is projected that the average amount of consumption expenditure on which VAT is imposed will rise from N35 trillion in 2024 to N40 trillion in 2025 and N45 trillion in 2026.
Similar to the CIT, it is anticipated that as the requirements of the various Finance Acts are effectively implemented, more VAT payers will fall inside the tax net. The medium-term VAT predictions are predicated on maintaining the rate at 7.5%. However, increasing the VAT rate is still a policy option that the government may consider in the future.
Regarding the anticipated “Non-Oil revenue vaseline assumptions,” the document said as follows: “The government has continued to implement various reform measures to further widen the revenue base, modernise and further improve tax administration, and enhance non-oil revenue collections in view of the declining revenue from crude of.”
“The medium-term non-oil income predictions are predicated on the incoming Administration maintaining and stepping up these reform initiatives to increase the share of non-oil revenue streams in financing the FGN budget.
The effective tax rate, the predicted efficiency of tax collection, and the expected increase of the various tax bases served as the foundation for the medium-term non-oil revenue predictions. It is anticipated that tax rates will mostly stay the same over that time.
The Federal Government declared that “Import duty projections are based on the cost, insurance and freight (CIF) value of imports, applicable tariffs and a projected efficiency factor” through the Customs Collections: import Duties, Excise, Fees and Special Levies.
It is expected that tax elasticity would propel the nominal tax base’s increase in the medium run. The foreign exchange rate, the efficient application of current tax legislation, the Common External Tariff (CET) 2022–2026 implementation, and a renewed emphasis on the execution of the Africa Continental Free Trade Agreement (AfCFTA) are additional factors to be taken into account.
Likewise, it is anticipated that the federal government will increase revenue via the Companies Income Tax (CIT).
The predicted nominal GOP, the company profitability ratio, and additional advancements in collection efficiency serve as the foundation for the CIT predictions. After accounting for businesses in the unorganised sector, it is projected that the average gross operating profits of the companies from which the CIT prediction was generated will be N9.3 trillion in 2024, 10.6 trillion in 2025, and 11.2 trillion in 2026.
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Estimates were developed with the notable expansion of the domestic economy in mind, together with the successful execution of the National Development Plan 2021–2025. A successful expansion of the tax net and a notable improvement in the business and investment climate in Nigeria are two other crucial presumptions. More importantly, it is anticipated that the volume of online transactions would continue to expand at the historical rate.
“Estimated aggregate nominal consumption was used to project the VAT, accounting for vatable products and collection efficiency. After accounting for exclusions, zero-rated products, and businesses with annual revenue below N25 million, it is projected that the average amount of consumption expenditure on which VAT is imposed will rise from N35 trillion in 2024 to N40 trillion in 2025 and N45 trillion in 2026.
Similar to the CIT, it is anticipated that as the requirements of the various Finance Acts are effectively implemented, more VAT payers will fall inside the tax net. The medium-term VAT predictions are predicated on maintaining the rate at 7.5%. However, increasing the VAT rate is still a policy option that the government may consider in the future.
The Federal Government is anticipated to step up efforts to increase the effectiveness of VAT collection in the medium term.
The Federal Government will need to expand its reach and boost the effectiveness of its collection efforts in order to accomplish this goal. This will be done by registering and monitoring VAT nationally and implementing ICT (auto-collect) systems in additional economic sectors. Additionally, the deduction term technology solution.
The government will step up its efforts to increase the efficiency of VAT collection and coverage in the medium term. By implementing ICT (auto-collect) systems in more economic sectors and registering and monitoring VAT nationwide, broader coverage and increased collection efficiency would be attained. Furthermore, all 36 states will implement the technological solution for deducting and remitting WHT and VAT from payments made under state government contracts.
Similarly, it is anticipated that in the medium run, the Federal Government will keep enforcing the Electronic Money Transfer levy.
“In order to greatly increase collections over the medium term, compliance with the approved Regulations governing the administration of the levy will be enforced.” The estimated volume of 2.7 trillion eligible online transfer transactions in 2024, 3.1 trillion in 2025, and 3.8 trillion in 2026 served as the basis for the estimates.
The Federal Government’s independent revenue was “estimated taking into consideration recent efforts aimed at addressing revenue leakages, excessive spending, and weak accountability of Government-Owned Enterprises (GOEs)” through the FGN Independent Revenue.
“Strict and efficient implementation of the numerous measures established to guarantee that GOEs function in a more financially responsible manner serves as the foundation for the estimation of Operating Surpluses, the main component of FGN Independent Revenues.
“Tighter performance management guidelines and further steps will be taken to guarantee the GOEs have more financial restraint and, in the short to medium run, significantly increase remittances.
As a result, it is anticipated that independent revenue collections will exceed estimates by a significant amount. The MTEF/FSP documents said, “These projections have not taken into account expected improvements in returns on government owned investments/assets from the restructuring of Ministry of Finance Incorporated (MOF).”
