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GILBERT EKUGBE
Manufacturers Association of Nigeria (MAN) has kicked against the 7.5 per cent Value Added Tax (VAT), saying it is ill-timed with a negative impact on producers and consumers
President Muhammadu Buhari signed the Finance law this week and thus kick-started the implementation of the new VAT, a component of the new law.
The new law increases VAT from 5 per cent to 7.5 percent and the manufacturers say such increase will affect the competitiveness of the manufacturing sector and also affect alleviation of the diminishing standard of life of the average citizens.
The Director-General, MAN, Segun Kadir, in a statement stated that the increment would constitute a drag on the performance of the manufacturing sector and add to a possible decline in the growth of the economy.
In his words, “Nothing in the arguments adduced for the increase has controverted the fact that it is ill-timed and would negatively impact the producers and the consumers.”
He added: “As we stated when the Bill was passed, the increase in VAT from 5 per cent to 7.5 per cent is a sore point in the otherwise progressive movement that the Financial Bill represent in our tax system.
According to him, warehouses are stacked up with high inventory of unsold goods due to unprecedented buyers apathy, stressing that even the so-called unaffected essential products or items are not so insulated.
He advised that instead of a tax increase, the federal government, the government out to have introduced policy that would focus on putting more money in the hands of the average Nigerian who can then make more purchases and improve their overall well-being
He said the Financial Bill 2019, even though a positive initiative, as it streamlines tax laws into a single document, offers incentives for investment in infrastructure and supports small businesses, however, stated that there are concerns in the tax increment.
“VAT is paid on inputs, such as packaging materials, electricity, raw materials and so on. This means that the final cost of the product has suffered VAT and so not charging VAT on the final product doesn’t not mean that the consumer has not “paid” VAT on that product,” he said.
“Having said that and seeing that government has gone ahead with the policy, there is the need to pay attention to the challenges that may be associated with the commencement of implementation. This is more so with manufacturing companies, owing to the peculiarity of business operations in the sector where the basis of revenue recognition is different from when sales and payment is received on items of goods produced,” he added.
He noted that there is usually a time lag between when customers make payments for sale orders and when the goods are made available to them, adding that this means that there will be significant instances of undelivered sales at the prevailing VAT rate of 5 per cent when the law was signed, and when the new VAT rate increase will take effect.
“We, therefore, feel that the sales order issued and paid prior to the effective date be invoiced at the current VAT rate of 5 per cent even after the effective date, while sales orders issued after the effective date be invoiced at the new VAT rate,” he said.
He also called for a special arrangement to assist businesses transit from the old rate to the new rate under different scenarios.
“Specifically, transitional guidelines for a smooth conversion from the current tax laws to the changes introduced in the new law is required. The guide should provide practical terms of dealing with and applying the change to the standard VAT rate from the effective date based on common taxpayers’ question,” he stressed.
BADEJO ADEMUYIWA has 23 years experience as a Finance Writer, specialising in Insurance and Investigative Reporting.
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