Taiwo Oyedele Committee proposes VAT Increases to compensate for tax reforms

The Nigerian fiscal policy committee led by Taiwo Oyedele has proposed sweeping reforms to the country’s Value-Added Tax (VAT) system, including increases in VAT rates on certain goods and services to offset the removal of multiple consumption taxes currently imposed by various states.

These changes are aimed at simplifying Nigeria’s complex tax framework, enhancing business competitiveness, and promoting economic fairness.

The Oyedele-led Presidential Committee on Fiscal Policy and Tax Reforms, after extensive consultations with stakeholders from both the public and private sectors, outlined its strategy in a recent public presentation.

The proposal includes removing several smaller consumption taxes that states levy independently, which often overlap with federal VAT and create a redundant financial burden on businesses and consumers.

According to Taiwo Oyedele, the committee’s chair, who clarified aspects of the reforms via his X (formerly Twitter) handle, stated that the goal was to streamline the tax system.

The committee’s proposal includes significant changes such as the introduction of full input VAT credits for businesses, which would allow them to deduct the VAT paid on services and goods used in production from their tax obligations. This shift is expected to ease cash flow pressures on businesses and stimulate economic activity.

Additionally, the plan calls for the removal of VAT from basic food items, educational materials, and healthcare, which are essential for the lower-income segments of the population.

To counterbalance the potential loss of revenue from these exemptions, the committee proposes a “consequential upward adjustment” to the VAT rate on luxury goods and other non-essential items.

Issues Identified

Experts suggest that this rebalancing act could bolster consumer spending on basic necessities while ensuring that the tax burden is shared more equitably across different income groups.

The proposal also includes measures to promote exports by removing VAT on exported services and intellectual properties, a move aimed at boosting Nigeria’s non-oil exports.

Other suggested reforms include enhancing the VAT refund process and introducing electronic invoicing to curb evasion.

Important to not that the committee’s proposal is not yet government policy but serves as a recommendation to the Nigerian government. It will undergo further review and discussion among policymakers before any legislative action is taken.