The Nigerian government has announced plans to gradually raise the Value Added Tax (VAT) rate from the current 7.5% to 15% as they aim to boost revenue and strengthen the economy.
Nigeria’s VAT rate, set at 7.5% since 2020, is one of the lowest in Sub-Saharan Africa. With a tax-to-GDP ratio of just 10%, the country lags behind the 18% average in major African economies. To close this gap, the government plans a progressive VAT increase, though no official timeline has been provided. The increase would double the current VAT rate, marking a significant change in the Nigerian tax system.
This move perfectly aligns with President Tinubu’s recent tax reforms. Earlier in his administration, he established a fiscal reform committee to modernize Nigeria’s tax laws and improve collection. This committee has introduced changes like exempting small businesses from certain withholding taxes and reducing rates for low-margin businesses, making the tax system fairer for smaller enterprises.
The World Bank has also encouraged Nigeria to raise VAT to reduce its reliance on oil revenues. In its Nigeria Development Update, the Bank recommended increasing VAT while allowing input tax credits and removing petrol exemptions. These changes, it argued, would widen Nigeria’s revenue base and help stabilize its finances.
Despite the need for revenue, the VAT increase has faced some opposition. Former Vice President Atiku Abubakar and others have voiced concerns about the impact on ordinary Nigerians, especially in a challenging economic climate. Last month, Finance Minister Wale Edun denied rumors of an immediate increase to 10% after receiving backlash from the public.
