Nigeria draft tax policy sees VAT hike to 15 pct

Nigeria is considering tripling Value Added Tax (VAT) while reducing tax on companies and individuals over the next 2-3 years in an attempt to curb tax evasion and encourage growth, authorities said on Wednesday.

Fiscal revenue from corporate and personal tax is dwarfed by levies from the oil industry, which makes government finances vulnerable to swings in the oil price.

Efforts to diversify revenue sources, partly by improving tax collection, are part of an IMF-backed economic reform programme Nigeria has pursued since 2003.

"The whole idea is to come up with a simpler tax structure," Ifueko Omoigui, chairwoman of the Federal Inland Revenue Service, told Reuters by telephone.

A draft tax policy made public on Tuesday recommends increasing VAT to 15 percent by 2009 or 2010 from 5 percent now.

Company income tax would decrease to 20 percent by 2009 from 30 percent now while personal income tax would be cut to 17.5 percent by 2009 from a top rate of 25 percent now, under proposals contained in the document.

An attempt by outgoing President Olusegun Obasanjo to double VAT to 10 percent just before stepping down in May was one of the triggers of a general strike in June. New President Umaru Yar'Adua reversed the measure in a deal with unions to help end the stoppage.

Yar'Adua pledged last month to present a tax reform bill that would end companies paying duplicate taxes and help the private sector, which he sees as the engine of growth in Nigeria, the world's eighth-biggest oil producer.

Omoigui said the draft document presented this week by a technical committee was the first step in producing a comprehensive new tax policy for Africa's most populous country.

She said the thrust of the policy proposals were to gradually lower direct taxation on companies and individuals in favour of higher indirect taxes.

"We have found it to be a lot more effective to do it that way. The focus is on consumption. The choice is with the individual to manage his tax burden and it will help achieve higher compliance rates," she said.

The draft budget for next year forecasts about 600 billion naira in non-oil revenue of which 364 billion naira comes from companies' income tax. That compares with a projected oil revenue of 4.366 trillion naira.

Omoigui said the draft tax policy would be opened to wide consultation and the proposals it contained were not yet official policy.