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.
“Our goal is to streamline the tax system, making it easier for businesses to comply and for the government to administer. By consolidating these taxes into a single, more efficient VAT system, we can reduce administrative costs and increase overall tax compliance.”
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.
Key highlights of his proposal
Issues Identified
No Input VAT Credit: Businesses cannot claim input VAT on services and assets, increasing operational costs and cash flow issues.
VAT on Basic Needs: Essentials such as food, education, and healthcare are not exempt or zero-rated, burdening the lower-income segments of the population.
VAT Compliance for Small Businesses: The low VAT exemption threshold places a compliance burden on many small businesses.
Multiplicity of Taxes: The presence of other consumption taxes in addition to VAT at the state level complicates the tax landscape.
VAT on Exports: Exported services and intellectual property are taxed, which can hinder the competitiveness of Nigerian exports in the global market.
Proposed Reforms
Full Input VAT Credit: Allowing businesses to claim input VAT would help reduce operational costs and improve cash flows.
Exemption of Essentials from VAT: Removing VAT from basic food items, education, and healthcare aims to protect economically vulnerable populations.
Harmonization of Consumption Taxes: Consolidating all consumption taxes into a single VAT could simplify the tax system and potentially resolve issues related to tax multiplicity.
Exemption of VAT on Exports: Making exports of services and intellectual property zero-rated could enhance the competitiveness of Nigerian exports.
Increased VAT Exemption Threshold for Small Businesses: Raising the threshold would reduce the burden of VAT compliance on small businesses.
Enhanced VAT Refund Process: Streamlining the refund process would alleviate working capital constraints for businesses.
Introduction of VAT Fiscalisation and E-Invoicing: These measures aim to combat tax evasion and make the system more equitable for honest businesses.
Adjustment of VAT Rate: A selective increase in the VAT rate for non-exempt items is proposed to counterbalance potential revenue losses from other reforms.
Rebalancing Act
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 proposed adjustments are designed to protect the poor while asking more from those who can afford to contribute more,” Oyedele explained.
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 note that the committee’s proposal is not yet government policy but serves as a recommendation to the Nigerian government.
It will likely undergo further review and discussion among policymakers before any legislative action is taken.
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