FG plans VAT hike to 15% to boost revenue amid inflation

The Nigerian federal government plans to gradually increase the Value Added Tax (VAT) rate from the current 7.5% to 15%, as part of a strategy to boost domestic revenue and strengthen financial resilience.

A document from the Ministry of Finance, obtained by Nairametrics, outlines plans to address Nigeria’s low revenue profile through improved tax compliance, specifically targeting corporate income tax and expanding the tax base.

Currently, Nigeria’s tax-to-GDP ratio stands at a mere 10%, one of the lowest in sub-Saharan Africa, compared to an 18% average among larger African economies.

The proposed VAT hike, which would represent a 100% increase since the rate was first raised in 2020, aims to raise the ratio to that regional benchmark.

READ ALSO: FG exempts VAT on diesel, cooking gas to boost Oil & Gas investments

Although specific dates for the incremental VAT adjustments remain undisclosed, the shift underscores the government’s focus on enhancing its fiscal position without increasing direct taxes on individuals.

This comes as Nigerians grapple with rising fuel prices, leading many to report that basic expenses, such as transportation to work, have become nearly unaffordable.

President Tinubu’s administration has also initiated a fiscal reform committee tasked with revising tax policies to support economic growth while minimizing the burden on small businesses.

Recent policy recommendations from the committee include a reduced withholding tax rate for businesses with small margins and new exemptions for small producers, such as farmers and manufacturers.

Despite previous denials from Finance Minister Wale Edun about imminent VAT rate hikes, the Ministry’s strategic push aligns with recommendations from the World Bank.

Last year, the World Bank advised Nigeria to increase its VAT rate to reduce reliance on oil revenues and expand fiscal resources.

The bank further suggested that Nigeria streamline VAT exemptions, including removing those on petrol, to improve revenue generation and fiscal stability.

As the government moves forward with these tax reforms, concerns about the economic impact of a higher VAT rate persist, especially amid the country’s steep inflation and cost-of-living challenges.