The proposed tax reform bills by President Bola Tinubu’s administration are designed to curb inflation and lower costs for most Nigerian households, according to Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms. Speaking to Reuters on Friday, Oyedele dismissed concerns that the reforms could worsen economic hardship in Africa’s most populous nation.
The reforms, which include plans to nearly double the Value-Added Tax (VAT) to 12.5 per cent by 2026, aim to streamline tax collection and overhaul revenue-sharing between federal and state governments. Oyedele emphasized that the proposals would exempt food, medicine, and other essentials—accounting for 82 per cent of household spending—from VAT, thereby reducing costs for the majority of Nigerians.
Key Highlights of the Tax Reforms
- Exemptions for Essentials:
Under the proposed reforms, essential items such as food and medicine will be exempt from VAT. Oyedele stated that this would lead to a decline in prices for the majority of households, as VAT would no longer apply to these goods. Only 18 per cent of goods, primarily non-essential items, would see price increases. - Inflation Reduction:
The reforms are part of Tinubu’s broader strategy to reduce inflation, which stood at 34.8 per cent in December 2023, to 15 per cent by the end of 2024. The administration has already taken significant steps, including ending the costly petrol subsidy and devaluing the currency twice in its first year. - Boost in Tax Compliance:
Nigeria’s tax-to-GDP ratio, currently at 10.8 per cent, is among the lowest in the world. Oyedele argued that the reforms would improve tax compliance, align Nigeria with global tax standards, and reduce the government’s reliance on borrowing to fund the budget. - Revenue Sharing Overhaul:
A contentious proposal to allocate 60 per cent of VAT revenues to states generating the revenues—up from the current 20 per cent—has sparked debate. Northern governors have expressed concerns about regional inequality, prompting a counter-proposal to cap the share at 30 per cent. Oyedele indicated that the federal government would not oppose this adjustment.
Addressing Critics’ Concerns
Despite the potential benefits, critics remain skeptical about the reforms. Adewunmi Emoruwa, Chief Executive of public strategy firm Gatefield, warned that the VAT increase could stifle consumption and industry growth, similar to the impact of a 2019 VAT hike.
“The government is putting pressure on people’s ability to spend,” Emoruwa said.
Oyedele, however, countered these concerns, stating that the reforms would ultimately reduce costs for most Nigerians. He noted that VAT revenue could drop by 30 to 40 per cent due to the expanded exemptions, compared to a potential 60 per cent decline if the VAT rate remained unchanged.
“People are paying less. It cannot be that they are paying more and VAT revenue is going down,” Oyedele maintained.
Looking Ahead
The proposed tax reforms represent a critical component of Tinubu’s economic agenda, aimed at stabilizing the economy and reducing inflation. While the plans have drawn criticism, the administration remains confident that the reforms will deliver long-term benefits for Nigerians.
As the debate over VAT revenue sharing continues, the federal government’s willingness to consider adjustments reflects its commitment to addressing regional concerns and ensuring equitable distribution of resources.
