The proposed tax reform bills by the Bola Tinubu administration will help curb inflation by lowering costs for most households, Reuters reported the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, as saying on Friday.
Oyedele also dismissed criticism that the plan risks worsening economic hardship in Africa’s most populous nation.
After ending a costly petrol subsidy and twice devaluing the currency in his first year in office, Tinubu has shifted his focus to reforming the tax system in his second year. While the measures have sparked price pressures, the president aims to reduce inflation to 15 per cent this year from 34.8 per cent in December.
The presidential aide defended the plan to almost double the Value-Added Tax (VAT) to 12.5 per cent by 2026, streamline its collection, and overhaul revenue-sharing between federal and state governments.
According to the report, the proposals include exempting food, medicine and essentials – which account for 82 per cent of household spending – from VAT, a consumption tax, which Oyedele said would lower costs for “the majority of Nigerians.” Only 18 per cent of goods would see price hikes, he said.
“On the majority of consumption by the majority of households, they will see a decline in their prices because the VAT is being taken out,” Oyedele said in the interview.
Nigeria’s tax-to-GDP ratio of around 10.8 per cent ranks among the world’s lowest, forcing the government to rely on borrowing to fund the budget.
The overhaul will boost compliance and align Nigeria with global tax standards, Oyedele said, adding that VAT revenue could drop 30 per cent to 40 per cent with the tax proposals due to the expanded exemptions compared with a decline of 60 per cent if the rate remains unchanged.
“So the fact is that people are paying less. It cannot be that they are paying more and VAT revenue is going down,” he maintained.
However, critics, including state governors and analysts, remain skeptical, with Adewunmi Emoruwa, Chief Executive of public strategy firm Gatefield, saying that the VAT increase, similar to a 2019 hike, risked stifling consumption and industry growth.
“The government is putting pressure on people’s ability to spend,” he said.
A contentious proposal to allocate 60 per cent of VAT revenues to the states generating the revenues, up from 20 per cent, drew a backlash from the country’s northern governors who fear regional inequality.
Oyedele said the federal government would not oppose a counter-proposal from the governors this month that would cap the revenue-generating states’ shares at 30 per cent, Reuters said.