Why Nigerians are now required to pay Value Added Tax (VAT) on phone calls
Normal day, Ade wakes up in the morning and decides to call his sick mother in the village. They talked for some minutes and when the call ended, the notification that popped up on his screen said that his last call was ‘inclusive of VAT’. He hasn’t seen that before, so he’s been wondering what this is all about.
Just like Ade, most Nigerians are beginning to see ‘inclusive of VAT’ as part of their call summary. Those who know what VAT means are wondering why they are suddenly paying Value Added Tax whenever they make phone calls or send SMS.
“So now I buy airtime with 7.5% inclusive [VAT] in the purchase price, then makes a call or sends SMS and they charge 7.5% VAT on it again,” an aggrieved man, Jimmy Gentle tweeted as he accused President Buhari of suffocating Nigerians.
But how did this come about?
President Muhammadu Buhari on October 8, 2019, presented a Finance Bill to a joint session of the National Assembly seeking an increase in the Valued-Added Tax rate from five percent to 7.5 percent.
In the bill, he proposed that people who use various classes of goods and services should pay tax on them. He said that this was “specially designed to create a truly enabling environment for business and investment by the private sector.”
After signing the bill into law on January 13, 2020, all the parties involved, including telecom companies were required by the law to start charging VAT of 7.5% from their customers.
The telcos complied, hence the new VAT charges.
Why was it introduced?
Nigeria is experiencing a revenue crisis due to declining crude oil earnings. As such, the government is trying to raise additional money by imposing more taxes.
The country was plunged into an economic recession earlier in 2016 as the global price of oil which is the country’s main source of revenue tanked. The situation was so dire that the government was unable to cushion the eroding economy. After some financial interventions, the economy was revived at a slow rate.
Despite the improvement in the economy, the government still struggled to meet its financial obligations which explain the need to look for means to offset the deficit.
Will this save the day?
Hardly. Although the new policy will only keep the wheels of the government rolling, some experts argue that it won’t improve the economy, rather it will make people poorer.
“Contemplating an increase in VAT rate now is bad timing and inconsistent with current economic reality. VAT increase will lead to higher inflation, interest rate hike, more unemployment and generally make people poorer,” Taiwo Oyedele, Head of Tax and Corporate Advisory Services at PwC Nigeria said.
