Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has clarified the committee’s recommendations to the federal government.

The proposal seeks to exempt essential items such as food, healthcare, education, and other necessities from Value-Added Tax (VAT) while making adjustments to VAT on non-essential items.

Oyedele’s statements, shared via a WhatsApp platform, stated that the suggested VAT regime is designed to significantly reduce the financial burden on average Nigerian households while ensuring that government revenue remains stable through adjustments on non-essential goods and services.

Under the proposal, the VAT rate for food, education, and healthcare will be reduced to zero percent (0%), offering immediate financial relief to Nigerian households. Additionally, rent, transportation, and small businesses will be exempt from VAT altogether.

Oyedele pointed out that data from the National Bureau of Statistics (NBS) shows that these areas account for the bulk of household expenditure, meaning the VAT burden will be lifted for millions of Nigerians.

“Data by the NBS shows that these are the areas where the average household spends almost all their income, meaning their VAT burden will reduce,” Oyedele stated, indicating that these changes are targeted at easing the financial strain on the masses, especially those in lower-income brackets.

To offset the revenue loss from reducing VAT on essential goods, the proposal recommends an upward adjustment of VAT on non-essential items.

This strategy ensures that the financial relief extended to households does not create a significant shortfall in government revenue.

Oyedele noted that the increase in VAT on non-essential goods would help maintain fiscal stability while protecting the purchasing power of ordinary citizens.

“The upward rate adjustment is on non-essential items to partly offset the impact of the reduction in rate and exemption for essential items, ensuring that the masses are protected, and providing some cushion for states who earn 85 percent of VAT revenue,” Oyedele explained.

By focusing VAT increases on non-essential items, the proposal seeks to balance public welfare with fiscal responsibility, allowing state governments, which rely heavily on VAT collections, to continue receiving their due revenue.

The proposed reforms also include provisions for businesses.

Oyedele noted that businesses would be able to claim full credit for the VAT they pay on their assets and services.

This move is intended to reduce overall costs for businesses, fostering a more conducive environment for investment and growth.

“Businesses will also get full credit for the VAT they pay on their assets and services, thereby lowering their overall costs and moderating inflation,” he said.

By reducing costs for businesses, the proposal aims to curb inflationary pressures, ensuring that price increases are kept in check even as the broader economy adjusts to the new tax framework.

One of the most significant aspects of the proposed VAT regime is its focus on small and medium-sized enterprises (SMEs).

According to Oyedele, over 97 percent of SMEs will be exempt from charging VAT on their sales, reducing the administrative burden and encouraging business growth in the sector.

This is expected to have a far-reaching impact on job creation and economic development, as SMEs form the backbone of Nigeria’s economy.

Additionally, the reforms aim to streamline VAT refunds, ensuring faster processing without the need for extensive tax audits. This will improve cash flows for businesses, making it easier for them to invest in operations and expansion.

The committee’s proposal also seeks to make the distribution of VAT revenue among states more equitable. This change is intended to address long-standing concerns about the fairness of VAT allocations, ensuring that all states benefit from the revenue generated, irrespective of their economic strength or size.

Oyedele also mentioned that the committee is recommending that VAT be the only consumption tax charged by the government, simplifying the tax system and improving compliance across sectors. This would involve discontinuing other consumption taxes and charging VAT where applicable.

Another key aspect of the proposed reforms is the focus on export growth. Oyedele stated that the export of services and intellectual properties would attract a zero percent (0 percent) VAT rate, encouraging businesses to expand into foreign markets and contribute to Nigeria’s export earnings.

The reduction of VAT on exports is expected to make Nigerian services and intellectual property more competitive on the global stage, facilitating trade and driving economic growth.

The proposed VAT regime outlined by the Presidential Fiscal Policy and Tax Reforms Committee represents a major shift in Nigeria’s approach to taxation.

By reducing VAT on essential goods and services, providing exemptions for SMEs, and ensuring that businesses can fully recover the VAT they pay on assets, the reforms are aimed at easing the financial burden on Nigerian households and businesses alike.

At the same time, the proposal ensures that government revenue remains stable by adjusting VAT on non-essential items while fostering economic growth through increased exports and streamlined business operations.

With the potential to boost economic recovery and create a more equitable tax system, the proposed reforms are now awaiting further deliberation and approval by the Federal Government. If implemented, they could mark a significant step toward a more inclusive and balanced fiscal policy in Nigeria.

As the nation continues to grapple with economic challenges, the proposed VAT regime offers hope for both households and businesses, promising financial relief and a more stable economic environment.

The government is expected to release further details in the coming weeks, providing clarity on the timeline for implementation and the specific items that will fall under the new VAT categories. (The Nation)

Update news