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MAN faults VAT hike, seeks flexibility in implementation

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Weak economy cuts number of South African companies paying taxBy Yinka Kolawole

The Manufacturers Association of Nigeria (MAN) has faulted the 50 percent increase in the Value Added Tax (VAT) rate as contained in the 2019 Finance Bill recently signed into law by President Muhammadu Buhari.

In a correspondence with Vanguard yesterday, the Director General, MAN, Mr. Segun Ajayi-Kadir, noted that the increase in VAT is a sore point in the otherwise progressive movement that the Financial Bill represents in the nation’s tax system, adding that challenges associated with the commencement of implementation of the new VAT regime requires special attention.

He lamented that the move “is also an unexpected turn in the efforts of government to improve the competitiveness of the manufacturing sector and alleviation of diminishing standard of life of the average citizens”.

He stated: “Already our warehouses are stacked up with high inventory of unsold goods due to unprecedented buyers’ apathy. Even the so called unaffected essential products or items are not so insulated. VAT is paid on inputs, such as packaging materials, electricity, raw materials and so on.”

READ ALSO: FG defends VAT increase, says it’ll help struggling states 

Ajayi-Kadir, however, noted that since the government has gone ahead with the policy, there is the need to pay attention to the challenges that may be associated with the commencement of implementation.

“This is more so with manufacturing companies, owing to the peculiarity of business operations in the sector where the basis of revenue recognition is different from when sales and payment is received on items of goods produced. There is usually a time lag between when customers make payments for sale orders and when the goods are made available to them. This means that there will be significant instances of undelivered sales at the prevailing VAT rate of 5% when the law was signed, and when the new VAT rate increase will take effect.

“We therefore feel that the sales order issued and paid prior to the effective date be invoiced at the current VAT rate of 5% even after the effective date, while sales orders issued after the effective date be invoiced at the new VAT rate.

“Also, special arrangement is required to assist businesses transit from the old rate to the new rate under different scenarios. Specifically, transitional guidelines for a smooth conversion from the current tax laws to the changes introduced in the new law are required,” he stated.

Vanguard

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