Manufacturers Set to Gain as VAT Reform Slashes Costs by 3.3 Per Cent
- Chairman of the Presidential Tax Reform Committee, Taiwo Oyedele, has said that the VAT reforms will not result in higher costs for manufacturers
- Oyedele did a comparative analysis to show how the new VAT regime would reduce manufacturing costs by 3%
- Since its first presentation, the tax reform bill has generated many reactions and some endorsements from key players
Legit.ng journalist Ruth Okwumbu has over a decade of experience and a deep understanding of Nigeria's corporate sector and emerging trends in the fintech space.
The proposed Value Added Tax (VAT) reforms under the Tax reform bills will reduce manufacturing costs for Nigerian manufacturers by up to 3.3%.
This is according to Mr. Taiwo Oyedele, chairman of the Presidential Tax Reform Committee.
Source: UGC
Oyedele argued that the proposed VAT in the bill will have a positive impact on Nigeria’s manufacturing sector.
He summarised the discussions from a recent meeting with the Organised Private Sector of Nigeria (OPSN) in a post titled ‘Impact of Proposed VAT Reform on Cost Budget’.
The VANGUARD reports that a participant had asked what the impact of the tax reform meant for manufacturers, and using a comparative analysis, Oyedele showed how it would result in slightly lowered manufacturing costs.
He said:
“The comparative analysis is based on the difference between the Company Income Tax (CIT) deduction or capital allowance for nonclaimable VAT under the current law versus input claim under the proposed VAT reform, including the rate increase.”
Manufacturers budget breakdown
Oyedele explained that any VAT on raw materials and VAT absorbed on manufacturing assets is claimable in the reform bill.
He said there will be zero increases in salaries and wages, as they do not fall within the scope of VAT, while the increase in finance costs will be negligible, as the bulk are not VATable.
He added that any VAT on training and development will be treated as input VAT, and every VAT on marketing and distribution, plant and equipment, right-of-use assets, communications, and professional fees can be claimed under the VAT reforms.
He summarised:
“Overall impact – The total cost borne by the company reduces from 1000 to 967 (a cost decline of 3.3%) despite the rate increase”.
Overall, manufacturing companies can thus expect to spend 3% less.
The tax reform covers multiple taxation and tax processes and seeks to align Nigeria's tax system with global standards.
Since its first presentation, the proposed tax reform bill has not stopped eliciting varying reactions from different corners.
CSOs endorse tax reform bill
Legit.ng recently reported that about 200 Civil Society Organisations (CSOs) in the north, including the Coalition of Northern Civil Society Groups and Concerned Northern Professionals endorsed the bill.
The groups argued that the bill when passed into law, would trigger a national economic revolution and a competitive business environment.
Even though they acknowledged the concerns of the northern governors over the revenue-sharing formula, they stated that the bill promotes equity and fairness in the distribution while also considering the needs and interests of all sections.
Proofread by Kola Muhammed, journalist and copyeditor at Legit.ng
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Source: Legit.ng
