The Federal Executive Council (FEC) has approved an increase in the Value Added Tax (VAT), from the current five per cent to 7.2 per cent beginning next year.
Speaking to State House Correspondents, the Finance Minister explained that the council gave its consent for the ministry to begin consultation with relevant stakeholders, including members of the National Assembly (NASS) for implementation of the new VAT regime.
According to Ahmed, states and local governments stand a better chance to benefit in the VAT increase, which will enable them handle the challenge of salary payment and funding of critical infrastructure.
She said: “We also reported to council and council has agreed that we start the process towards the increase of the VAT rate. We are proposing and council has agreed increase in the VAT rate from five per cent to 7.2 percent.
“This is important because the Federal Government only retains 15 per cent of the VAT, 85 per cent is actually for the states and local governments and the states need additional revenue to be able to meet the obligations of the minimum wage.
“This process involves extensive consultations that need to be made across the country at various levels and also it will involve the review of the VAT Act. So, it is not going to be implemented immediately until the Act is reviewed.
“So accordingly, following these assumptions, the total revenue estimate in the sum of N7.5 trillion for the year 2020 and N2.09 trillion that will be accruing to the federation account and the VAT respectively.
“There will, of course, be the distribution to the three tiers of government based on the statutorily revenue sharing formula as defined in the constitution and to this effect, it means the Federal Government will be receiving proposed aggregate of N4.26 trillion from the federal account and the VAT pool, while the states and the local government are expected to receive N3.04 trillion and N2.27 trillion respectively.”
While explaining FEC’s decision on next year’s appropriation bill, the minister said: “The expenditure for the year 2020 is in the total sum of N10.07 trillion. This is three per cent less than the approved expenditure in the 2019 budget that has been passed into law.
“The total expenditure includes statutory transfers, non-debt recurrent expenditure such as salaries and pensions and also the social intervention programme.
“The 2020 budget has a debt service estimated at N2.45 trillion and a sinking fund to retire maturing obligations issued to local contractors and other creditors in the sum of N296 billion.
“So there is a total sum of N3.43 trillion that is provided for personnel and pension cost inclusive of N218 billion for the top 19 government-owned enterprises in the country. This represents an increase of N453 billion over the 2019 approved budgetary expenditure. This also implies a 40 per cent of this recurrent expenditure to the projected revenue.
“The budget deficit is projected at N2.15 trillion in the year 2020 and this is lower than what was approved in the 2019 budget, which was N2.47 trillion. Let me state that these projections include draw downs on project tied loans and this represent 1.51 per cent of estimated gross domestic product (GDP). This is well below what is allowed by the Fiscal Responsibility Act of 2007 which is still put at three per cent.
“I want to add that council approved our presentation and so the next phase for us is to consult with the National Assembly and then send the Medium Term Expenditure Framework (MTEF) to the National Assembly for their own view and subsequent approval,” she added.
FEC also approved a total of N182.68 billion for various road projects across the country.
The Minister of State for Works and Housing, Abubakar Aliyu, explained that the road projects covered Lagos, Niger, Kano, Katsina, Edo, Kwara, Taraba, Jigawa, Imo, Abia, Yobe, FCT, and Anambra.
The roads projects by state are the extension of Lagos-Badagry expressway project to Benin-Nigeria border N15.2 billion, two bridges at Kontagora in Niger State at N1.1 billion and Kano-Katsina road at N9.4 billion.
Also approved were Kontagora-Bangi road Niger State at N20.3 billion; Marina-Bonny camp road, Lagos State at N9.2 billion; Edo State road at N4.5 billion and Kwara road at N18.4 billion.
The Kano State road was N2.5 billion, Taraba State road N12.3 billion, Niger State road N10.6 billion, Jigawa State road N25.3 billion, Aba-Owerri road N6.98 billion, Yobe State road N16.9 billion, FCT road N17.3 billion and Imo-Anambra states road N12.7 billion.
In his remarks, the Minister of Transportation, Rotimi Amaechi said council approved the revised estimate total cost for the rehabilitation of Itakpe/Ajaokuta Rail line.
“The contract was awarded $122 million but we requested for a total of $56 million additional works which were broken down into $38.8 million additional works and 17.2 million variation, now bringing the contract of Itakpe to Warri to a total of $178.7 million.
“Then we also requested for Lagos to Ibadan with extension to Lagos port complex in Apapa, we asked for additional works for $374 million with another variation of $282 million which totalled to $656.8 million added to $1.5 billion that the contract was initially awarded to,” Amaechi said.