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After months of consultation with stakeholders from private and public sectors, the Government on Tuesday finally released the Economic Recovery and Growth Plan, which raised the Value Added Tax rate on luxury items from the current 5 percent to 15 percent.
What this means is that rich people will pay more for certain goods and services.
Through the increase in VAT rate on luxury items, which the document stated would commence in 2018, as well as improvement in Companies Income Tax, a total of N350bn is being projected to be generated annually.
The administration of former President Goodluck Jonathan had in 2014, while unveiling its austerity measures, identified some items that were to be taxed as luxury goods to include champagne, alcoholic beverages, private jets, luxury cars based on engine capacity, and yachts.
The President Muhammadu Buhari-led government said it would increase non-oil tax revenues by improving tax compliance and broadening the tax net by employing appropriate technology and tightening the tax code, as well as introducing tax on luxury items and other indirect taxes to capture a greater share of the non-formal economy.
It also announced plans to undertake major reforms in the budgeting for state-owned enterprises, which would include legislative amendments of the laws establishing many of the SOEs.
According to the document, FG is targeting real Gross Domestic Product of N81.38tn by 2020.
The document, the content of which is expected to take the country out of recession, was released by the Ministry of Budget and National Planning and contains the economic blueprint of the government for the three-year period, 2017 to 2020.
It read in part, “Continued dependence on crude oil exports as a primary source of foreign exchange earnings makes the Nigerian economy vulnerable to domestic and external shocks from the oil and gas sector.
“Indeed, although the oil and gas sector represents about 10 per cent of the total GDP, it still accounts for 94 per cent of export earnings and 62 per cent of government revenues. Diversification of the economy must therefore extend to finding other sources of revenue and foreign exchange earnings.
“Policy objectives (are) to improve overall Federal Government revenues by increasing revenues from oil production and targeting non-oil revenue sources. Increase the tax base by raising the VAT rate for luxury items from five to 15 per cent from 2018, while improving CIT and VAT compliance to raise N350bn annually.”
The plan envisages that by 2020, Nigeria would have made significant progress towards achieving structural economic change with a more diversified and inclusive economy.
Overall, the plan is expected to deliver on five key broad outcomes, which are a stable macroeconomic environment; agricultural transformation and food security; sufficiency in energy (power and petroleum products); improved transportation infrastructure; and industrialisation focusing on small and medium-scale enterprises.
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