The debate on whether or not to increase the VAT rate in Nigeria has been on for quite a while. The subject has generated so many controversies both within the public and private sectors.

Section 39 of the Value Added Tax Act confers on the Minister of Finance the power to amend the rate of tax chargeable. The Federal Executive Council on Wednesday, 11th September 2019 again deliberated on the increase in the VAT rate from 5% to 7.2% which was approved and officially communicated by the Minister of Finance.

Value Added Tax is payable on all goods and services except on goods and services exempted from tax such as Basic food items, pharmaceutical products, baby products etc. It is usually referred to as a consumption tax. As long as one purchases "Vatable" goods or services, he/she is liable to pay VAT.

The increase in VAT rate as much as it implies more revenue for the government to solve economic problems if utilized effectively, which tentatively, is the main reason for the increase, would however also affect the economy and the consumers of goods and services

One of the canons of Taxation: Equity/Equality demands that the distribution of the tax burden should be equitable, while everyone is made to pay his fair share. A tax payer's liability should be proportional to his ability to pay. While those with the same income pay an equal amount of tax, those with different incomes should pay different amounts of tax.

Presently, the application of VAT negates the above principle as it is currently pegged at 5% for both the rich and the poor, to the extent that where both parties consume the same goods or services they end up paying the same amount.

Also, VAT is a consumption tax is levied on the final consumer. Any increase would automatically affect the cost of goods and services which in turn implies an increase in the cost of living for both the poor and the rich.

VAT increase would also influence a consumer's lifestyle. A person with high income may afford to buy more products or still maintain his budget even after the increase while a person with low income is left with no choice but to go for cheaper products, with greater emphasis on the price and not the quality. Alternatively, they may even choose to avoid such products completely.

Recommendation:
The approved new minimum wage is another reason for the increase in the VAT rate to enable Government to meet up to its revenue expectations should also be looked into and given full implementation. The approved increase in VAT rate would affect mostly the poor and as such, measures should be put in place to incorporate the equality principle of Taxation into the Tax system.

The newly approved tax increase, should be restricted to luxury items and not made to apply to all goods and services especially those utilized more by the low or middle-class and SMEs who are still trying to scale up their business.