The Chairman of the Presidential Tax Reform Committee, Taiwo Oyedele, has said that the proposed Value Added Tax (VAT) reform will reduce the cost of manufacturing by about 3.3 percent when implemented.
Oyedele disclosed this in a post titled, ‘Impact of Proposed VAT Reform on Cost Budget’, adding that the proposed VAT has positive implications on manufacturing.
According to him, he had to clarify questions arising from a recent meeting with the Organised Private Sector of Nigeria (OPSN).
He said: “We had a very productive session with the OPSN hosted by the Manufacturers Association of Nigeria (MAN).
“A participant who works for a manufacturing company asked to know when the reforms are likely to take effect and whether to include higher costs due to the proposed VAT rate increase in the company’s 2025 budget.
“This question reflects the general perception of the VAT reforms, whereas the overall impact is actually a cost reduction.”
He gave a comparative analysis of a typical manufacturer’s budget with explanatory notes.
“Raw materials – no impact as any VAT is currently claimable, similar to the proposed VAT law.
“Manufacturing overhead – VAT on absorbed manufacturing assets is claimable.
“Training and development – any applicable VAT will be eligible as input VAT.
“Salaries and wages – no impact. This item is outside the scope of VAT.
“Professional fees – VAT will become claimable; Communications – VAT becomes claimable; Marketing & distribution – VAT becomes claimable
“Finance cost – negligible impact as the bulk of this item is not VATable/
“Plant & equipment – VAT becomes claimable; Right of use assets – any VAT becomes claimable.
“Overall impact – The total cost borne by the company reduces from 1000 to 967 (a cost decline of 3.3%) despite the rate increase”he said.
Oyedele further noted: “The comparative analysis is based on the difference between the Company Income Tax (CIT) deduction or capital allowance for non claimable VAT under the current law versus input claim under the proposed VAT reform, including the rate increase.”
