Taxes can be conveniently classified as either Direct or Indirect. Value Added Tax (VAT) is a good example of an indirect tax of which the incidence or burden of payment falls on manufactured or sale of goods and services. On the other hand, a direct tax burden is shouldered by the individuals and the company. For instance, Personal Income Tax (PIT), Company Income Tax (CIT), PAYE etc are some of the examples of direct taxes.
The quantum of revenue that can be generated by the government through taxation is directly proportional to the state of the economy. In an economy with tax to GDP ratio of 6.1% (Wikipedia), the importance of an indirect tax like VAT cannot be disputed. To depict that, in every
N1m of goods and services produced in our economy, taxes generated is just N61, 000. The flip side of the coin is that the country needs to produce a greater GDP to have a higher receivable from taxes.
While it is conceded that the Nigeria economy tax to revenue is poor and among the lowest in Africa and the world at large, whether this is the right time for the Federal Government to move up VAT rate from 5% to 7.5% as recently approved by Federal Executive Council (FEC) has becoming the talking point. Let me quickly remind my readers that the policy direction is yet a proposal except the relevant tax law, in this case, the VAT Act is amended accordingly.