Phased VAT Increase to Ease Economic Impact, Says Tax Reform Chief

The Chairman of the Presidential Tax and Fiscal Policy Reforms Committee, Taiwo Oyedele, has confirmed that the proposed Value Added Tax (VAT) increase from 7.5 per cent to 10 per cent will be executed in phases. This strategic approach aims to mitigate the economic impact and prevent a sudden surge in the prices of goods and services.

Oyedele, speaking at a public consultation workshop for journalists and public analysts in Abuja on Monday, revealed that empirical data shows fewer than 10 per cent of affluent Nigerians are compliant with their tax obligations. The workshop, themed ‘Proposed changes to the national tax policy, tax laws and administration,’ highlighted significant adjustments in the VAT revenue-sharing formula, increasing the state collection rate from 50 to 55 per cent, the local government share to 35 per cent, and reducing the Federal Government’s share to 10 per cent.

“The reforms will see a reduction in Company Income Tax from 30 per cent to 25 per cent, implemented gradually over the next few years,” Oyedele stated. “Similarly, the VAT increase will also be phased, beginning with a modest increment in 2025 followed by another in 2026. This phased approach will help avoid a drastic drop in government revenue and allow for better planning.”

Currently, VAT is a 7.5 per cent consumption tax administered by the Federal Inland Revenue Service, with revenues distributed to the three tiers of government. Despite generating N10.1 trillion in VAT under former President Muhammadu Buhari, the government has called for increased rates to boost revenue further. The former Minister of Finance, Zainab Ahmed, had recommended raising VAT to 10 per cent.

To alleviate the burden on essential goods, Oyedele mentioned that the committee has proposed zero per cent VAT on food, education, medical services, and accommodation. “These adjustments are designed to reduce the cost of essential products and help control headline inflation,” he explained.

Oyedele also addressed the issue of tax compliance, particularly among wealthy Nigerians. “Our data shows that fewer than 10 per cent of affluent individuals pay the correct amount of tax. To improve compliance, we have recommended that candidates for elective office or government appointments must fully comply with their tax obligations,” he said.

The proposed tax reforms include a comprehensive overhaul of the existing tax structure, consolidating various taxes into harmonised categories. The new regime aims to streamline tax collection and ensure more equitable distribution of tax revenue across the federal, state, and local governments.

Key Points from the Proposed Tax Reforms:

Gradual Increase in VAT: Increment from 7.5 per cent to 10 per cent in phases to avoid economic shock.

Adjustments in Revenue Sharing: Increased shares for states and local governments, reduced share for the Federal Government.

Zero VAT on Essentials: Food, education, medical services, and accommodation to carry zero per cent VAT.

Enhanced Tax Compliance: Recommendations for strict compliance checks for candidates seeking public office.

Harmonised Tax Structure: Consolidation of multiple taxes into unified categories for efficient administration.

By phasing in these reforms and focusing on strategic tax policy changes, the committee aims to create a more sustainable and equitable tax system while addressing the challenges of low tax compliance and high inflation.