Edun: VAT stays 7.5%

Tax-free fundamental goods and services
Wale Edun, the Coordinating Minister of the Economy and Minister of Finance, stated Wednesday that there was no intention by the government to raise the Value Added Tax (VAT).

According to him, sustainable economic policies that spare citizens from further hardship are what the administration would prefer to concentrate on.

Claims in certain places that a possible increase in VAT from 7.5 percent to 10 percent are denied by the minister, who clarified that no such tax increase is being considered.

Edun stated that President Bola Tinubu is still dedicated to sustainable economic policies and budgetary stability that won't put further strain on the people.

The minister reaffirmed that Nigerians will not be required to pay taxes on necessities including as food, housing, transportation, healthcare, and education, under the ongoing tax reforms by the Federal Government.

He added that all essential households’ consumptions and businesses will be exempted from VAT.

Edun’s clarifications came as the latest report by the NBS showed that government was becoming more efficient in tax collections, with increases in VAT collections and Company Income Tax (CIT), even at current rates.

The NBS stated that VAT collection rose by 9.11 per cent to N1.56 trillion in second quarter of 2024 from N1.43 trillion in first quarter of 2024.

However, compared to second quarter of 2023, the second quarter of 2024 VAT collections represented an increase of 99.82 per cent.

In another report titled: “Company Income Tax (CIT) Second Quarter 2024”, the NBS reported that aggregate CIT rose by 150.83 per cent to N2.47 trillion in the second quarter of this year from N984.61 billion in first quarter.

Compared to the second quarter of 2023, CIT collections in second quarter of 2024 increased by 59.52 per cent from N1.55 trillion recorded in comparable quarter in 2023.

Edun said: “The current VAT rate is 7.5 per cent, and this is what the government is charging on a spectrum of goods and services to which the tax is applicable. Therefore, neither the Federal Government nor any of its agencies will act contrary to what our laws stipulate.”

This statement is seen as a direct response to media reports suggesting that government was preparing to increase VAT as part of its economic recovery strategy.

Edun noted that the misinformation had created unnecessary panic.

He reiterated the administration’s commitment to using fiscal policy to achieve robust and sustainable economic growth, reduce poverty, and foster an enabling environment for businesses to flourish.

The minister underscored the importance of a balanced and stable tax system for Nigeria’s fiscal health, stressing that tax policy, tax laws, and tax administration must work in harmony.

Edun stressed: “The tax system stands on a tripod, namely tax policy, tax laws, and tax administration. All three must combine well to give us a sound system that gives vitality to the fiscal position of the government.”

Contrary to the rumour that government wanted to impose more financial hardships on Nigerians, Edun highlighted relief measures taken by the administration to mitigate the impact of inflation and rising food prices.

He said the recent suspension of import duties for essential commodities, including rice, wheat, and beans, were part of government’s efforts to ease economic pressure on both businesses and consumers.

He added: “It is on record that the Federal Government, as part of efforts to bring relief to Nigerians and businesses, recently ordered the stoppage of import duties, tariffs, and taxes on rice, wheat, beans, and other food items.”

The minister said these policies were designed, not only stabilise the economy, but also to ensure food security by making staple goods more affordable for the average Nigerian.

Edun urged Nigerians to disregard unverified reports, assuring the public that any tax reforms or adjustments would be communicated through official government channels.

He emphasised the importance of relying on accurate information to prevent misinformation and unnecessary anxiety among the public.

Edun said: “The imputation in some media reports on the issue of VAT and the opinion articles that have sprouted from them seem to wrongly convey the impression that the government is out to make life difficult for Nigerians.

“That is not correct. If anything, the Federal Government has, through its policies, demonstrated that it is committed to creating a congenial environment for businesses to thrive.”
In order to keep the public informed and prevent misunderstandings regarding the government's financial decisions, the minister stated that the Ministry of Finance was still dedicated to providing clear and honest communication on all tax and economic policies.

The VAT regime was created to drastically lessen the financial burden on typical households while ensuring that government revenue remained stable through adjustments on non-essential goods and services, according to Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee.

The plan would immediately provide consumers with financial assistance by lowering the VAT rate to 0% on food, healthcare, and education.

Moreover, small enterprises, rent, and transit will not be subject to VAT.

Edun reiterates the Federal Government's commitment to supporting the local economy and agriculture industry.
"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," stated Oyedele.
According to him, the goals of these adjustments were to lessen financial hardship for everyone, but particularly for those with lower incomes.

Business-related aspects are also included in the proposed revisions.

According to Oyedele, companies would be able to fully deduct the VAT they spend on their supplies and labour.

According to him, the action would lower firms' overall expenses and create an atmosphere that is more favourable for growth and investment.

"Businesses will also receive full credit for the VAT they pay on their assets and services, mitigating inflation and lowering their overall costs," Oyedele continued.

The proposal's goal is to lower corporate costs in order to reduce inflationary pressures and maintain price stability even as the economy as a whole acclimates to the new tax structure.

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

According to Oyedele, over 97 per cent of SMEs will be exempted 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.

Also, the reforms aim at streamlining 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 said 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 said the export of services and intellectual properties would attract a zero per cent 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.

However, to offset the revenue loss from reducing VAT on essential goods, there is a proposal for 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.

The proposed reforms are now awaiting further deliberation and undergoing law-making processes.

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

He added: “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 per cent of VAT revenue.”

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.

In its VAT report for the second quarter of 2024, NBS indicated that local payments were N792.58 b