The Nigerian Senate has rejected the Federal Executive Committee (FEC) proposed Value Added Tax (VAT) increase – from 5% to 7.5% – scheduled to take effect by January 2020.

The decision was revealed by Senator Ali Ndume, Chairman of the Senate Committee on Army, after the senate’s plenary session on Wednesday.

Recall that last month, the Minister of Finance, Budgeting and Planning, Mrs Zainab Ahmed announced an increase in Value Added Tax (VAT) on goods, from 5 per cent to 7.2 per cent.

Upon its approval by federal lawmakers, the new VAT was scheduled to take effect in 2020. However, Ndume explained that the increase has been rejected because of its potential effects. He noted that it would ultimately discomfort the greater percentage of Nigerians as the prices of goods and services are bound to hit the roof.

Meanwhile, the Senator has proposed a 9% tax on Communication Services like Data and SMS service.

According to Ndume, the service tax would be levied on Telecommunication Services Providers and Internet Service.

“A 9% communication service tax shall be levied on such Electronic Communication Services like Voice Calls; SMS; MMS; Data usage both from Telecommunication Services Providers and Internet Service as well as Pay per View TV Stations.”

Senator Ali Ndume, Chairman of the Senate Committee on Army

The 9% service tax bill was introduced by Ndume at the plenary session on Wednesday and will now go for a second reading before being referred to the appropriate committee for further legislative action.

 The bill reads in part:

“The tax shall be levied on Electronic Communication Services supplied by Service Providers. For the purpose of this clause, the supply of any form of recharges shall be considered as a charge for usage of Electronic Communication Service.”

Extract from Bill for an Act to establish the Communication Service Tax

The Minister of Finance earlier clarified after the FEC meeting that increasing VAT was important because it would equip the State Governments with financial aid to pay the minimum wage. According to Ahmed, the FG would only retain 15% of the VAT, while 85% would go to the states and local governments.

However, Ndume believes that increasing the Communication Service Tax is a better way of distributing wealth and lessening the burden on low income earners.