The Federal Executive Council (FEC) presided over by President Muhammadu Buhari has approved a two point five percent increase in Value Added Tax (VAT).
Briefing State House correspondents at the end of the maiden FEC meeting in Abuja, Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, said implementation of the VAT increase would not commence until the National Assembly amends the Value Added Tax Act.
She said the council also directed immediate consultations with states, local governments and relevant stakeholders before the proposed VAT increment takes effect in 2020.
“Council has agreed that we start the process towards the increase of the VAT rate. We are proposing and council has agreed an increase of VAT rate from five percent to 7.2 percent. “This is important because the federal government only retains 15 percent of the VAT, 85 percent is actually for the states and local governments and the state need additional revenue to be able to meet the obligations of the minimum wage.
“This process involves extensive consultations that needs to be made across the country at various levels and also it will involved the review of the VAT Act. So, it is not going to be implemented immediately until the Act is reviewed.
“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,” she said.
The minister also told journalists that the council also approved N10.07 trillion budget estimates for the 2020 fiscal year and the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP).
“The expenditure for the year 2020 is in the total sum of N10.07 trillion. This is three percent less than the approved expenditure in the 2019 budget that has been passed unto 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 percent 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 percent 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 percent.
“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 the Medium Term Expenditure Framework (MTEF) to the National Assembly for their own view and subsequent approval,” she said.
The Federal Executive Council also approved N182. 68 billion for various road projects across the country.
Minister of State for Works and Housing, Mr Abubakar D. Aliyu, who disclosed this, said the road projects are are in Lagos, Niger, Kano, Katsina, Edo, Kwara, Taraba, Jigawa, Imo, Abia, Yobe and Anambra states and the Federal Capital Territory (FCT).
Also speaking, Minister of Transportation, Mr Rotimi Amaechi, said the council approved a revised estimates 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 extention 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,” he said.