The Federal government plans to steadily raise the rate for Value Added Tax (VAT) to 15% from the current 7.5%.
The move is part of efforts to improve local revenue mobilisation and strengthen public finance buffers.
In a document prepared by the Ministry of Finance obtained by Nairametrics, the federal government plans to address its low revenue profile by improving tax compliance, especially company income tax and widening the tax base.
The document states, “Addressing low domestic revenue mobilization through various measures, including strengthening tax administration and improving tax compliance, particularly in corporate income tax (CIT), an increase in the value-added tax (VAT) rate and broadening the tax base. Progressively increase the VAT rate from 7.5 percent to 15 percent.”
Nigeria’s tax-to-GDP ratio is currently one of the lowest in the Sub-Saharan Africa region at just 10% as of 2023. The Federal government plans to increase the figure to 18%, the average across major economies in Africa.
The planned progressive increase in the VAT rate to 15% represents a 100% increase in VAT compared to the current VAT rate of 7.5% which only started four years ago in 2020. Also, it is not known when the planned increase in VAT rate will take place.
President Tinubu’s Tax reforms
Earlier into his administration, President Tinubu inaugurated a fiscal and tax reforms committee meant to reform tax legislation and administration in the country. Some of the committee’s new policies and recommendations include a new withholding tax regime that exempts small businesses and producers such as farmers and manufacturers.
Furthermore, the withholding tax regime also reduced the rate for businesses with small margins.
In the past few months, there have been rumours of plans by the federal government to increase the VAT rate from the current 7.5%. Last month, the Minister of Finance, Wale Edun denied plans by the federal government to increase the VAT rate to 10% after harsh criticism from Nigerians including former Vice President, Atiku Abubakar.
Calls to increase VAT rate
The World Bank last year in her Nigeria Development Update (NDU) advised the federal government to raise the Value Added Tax (VAT) rate as a means to increase non-oil revenue and strengthen the country’s fiscal resources.
In the report, the global lender proposed raising the current VAT rate of 7.5% to create more fiscal space and expand non-oil revenue streams. The report further emphasized that the VAT increase should accommodate input tax credits and recommended the removal of exemptions on petrol as part of comprehensive efforts to enhance non-oil revenue generation.
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