FEC Approves N10.07tn 2020 Budget Proposal, Increases VAT to 7.2%

The Minister of Finance, Mrs. Zainab Ahmed, Wednesday said the Federal Executive Council (FEC) has approved N10.07 trillion as the budget for 2020.

The minister also said the council approved the increase of value added tax (VAT) from the current 5 percent to 7.2 per cent. However, she was quick to add that implementation of the new VAT rate would be subject to amendment of the extant VAT law.

Briefing reporters at the end of the first FEC meeting since the swearing in of new ministers, Ahmed said the estimate was contained in 2020-2022 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) presented to the council by her ministry.

According to her, the document contains N10.07trillion budget proposal for 2020 fiscal year, revenue target of N7.5 trillion and additional N2.09trillion revenue from VAT, $55 per barrel oil benchmark, N305/$ exchange rate and oil production of 2.1 million barrels per day.

Ahmed, who said the budget would run at N2.15 trillion deficit, which she described as a reduction from the N2.24 trillion budget deficit of the outgoing 2019 fiscal year, also said the economy had been projected to grow at 3.01 percent at the end of 2019.

According to her, the economy had grown from 0.8 per cent in 2017 to 2.02 per cent in the first quarter of 2019, adding that inflation has also fallen from 18.7 per cent in 2017 to 11.02 per cent as at July 2019.

On VAT, the minister said the council approved the increase of value added tax (VAT) from the current 5 per cent to 7.2 percent to assist the states in revenue generation for salary payment.

According to her, only 15 per cent of VAT revenues accrue to the federal government while the bulk of the remaining 85 percent goes to states, explaining further that the planned increase was necessitated by the need to assist the states in shoring up their revenues to meet the new minimum wage demand.

She said: “We also reported to council and council has agreed that we start the process towards the increase of the VAT rate. We are proposing and council has agreed that we increase the VAT rate from five per cent to 7.2 per cent. This is important because the federal government only retains 15 percent of the VAT, 85 percent is actually for the states and local government and the states need additional revenue to be able to meet the obligations of the minimum wage.

“This process involves extensive consultations that need to be made across the country at various levels and also, it will involve the review of the VAT Act. So, it is not going to be implemented immediately until the Act is reviewed.

“So accordingly, following these assumptions, the total revenue estimate in the sum of N7.5 trillion for the year 2020 and N2.09 trillion will be accruing to the federation account and the VAT respectively.”


She explained that VAT proceeds would be distributed to the three tiers of government based on the statutory revenue sharing formula as defined in the constitution.

Subsequently, Ahmed further explained, the federal government would receive proposed aggregate of N4.26 trillion from the federation account and the VAT pool, while the states and the local governments would receive N3.04 trillion and N2.27 trillion respectively.”

The finance minister also said 2020 MTEF consisted of N2.45 trillion for debt service with sinking fund of N296 billion and N3.43 trillion personnel and pension costs. She said the personnel cost is an increase of N453 billion from the 2019 approved figure.
The minister explained that following the approval of MTEF by the council, the federal government would go ahead to consult the National Assembly and present the document to it for approval.

Also briefing, the Minister of Transportation, Mr. Rotimi Amaechi, said the council approved a revised estimate cost for the rehabilitation of Itakpe-Ajaokuta-Warri rail line.

According to him, the contract was initially awarded at the rate of $122 million but the ministry requested for the approval of another $56 million to accommodate additional jobs.

Amaechi said the jobs were broken down into $38.8 million additional works and $17.2 million variation now bringing the contract of Itakpe to Warri to a total of $178.7 million.

He also said the ministry requested for the extension of Lagos – Ibadan rail line to Lagos port complex in Apapa with additional cost of $374 million and another variation cost of $282 million, totaling $656.8 million. He said approvals were in addition to $1.5 billion that the contract was initially awarded for.

Minister of State for Works, Mr. Aliyu Abubakar, said the council approved a total of N182 billion for road construction and rehabilitation in different parts of the country.

Breakdown of the approval, according to the minister were extension of Lagos-Badagry expressway project to Benin-Nigeria border at N15.2 billion; two bridges at Kontagora in Niger State at N1.1 billion; Kano – Katsina road at the cost of N9.4 billion; Kontagora-Bangi road in Niger State at N20.3 billion and Marina-Bonny camp road in Lagos State at N9.2 billion.

Other road projects approved according to the minister, were N4.5 billion for Western road linking Edo and Delta States; N18.4 billion for Kwara road; N2.5 billion for a Kano State road; a Taraba State road at N12.3 billion; a Niger State road at N10.6 billion; Jigawa State road at N25.3 billion; Aba – Owerri road at N6.98 billion; Yobe State road at N16.9 billion, Yaba – Yangoji road in the Federal Capital Territory (FCT) at N17.3 billion and Arondizuogu road at N12.7 billion.

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