Presidential Committee on Tax Reforms: ‘We Need to Raise VAT Rate’

In a significant development regarding fiscal policy and tax reforms, Taiwo Oyedele, the chairman of the presidential committee on fiscal policy and tax reforms, has advocated for an increase in the value-added tax (VAT) rate. Speaking at a policy exposure and impact assessment seminar organized by the committee, Oyedele emphasized the necessity of revising the VAT revenue-sharing formula.

The committee’s proposal includes reviewing the distribution of VAT revenue, with a suggestion to increase the combined share of states and local governments to 90 percent. Currently, according to Section 40 of the VAT Act, the federal government receives 15 percent of the tax revenue, while states and local governments share 50 percent and 35 percent, respectively.

Oyedele proposed a reduction in the federal government’s portion from 15 percent to 10 percent, aiming to empower states while ensuring a fair allocation to local governments. Explaining the rationale behind the proposed changes, Oyedele highlighted the historical context of VAT implementation in Nigeria and the need for transparency and neutrality in tax distribution mechanisms.

He stressed that Nigeria’s economy, predominantly driven by services, requires a balanced approach to VAT reform to prevent adverse impacts on states’ finances. To mitigate the burden on low-income earners and small businesses, Oyedele assured that essential items such as food, education, medical services, and accommodation would remain exempt from VAT.

In collaboration with the private sector, Oyedele emphasized the importance of ensuring that VAT reforms do not lead to price hikes. He affirmed the committee’s commitment to conducting thorough assessments and engaging with businesses to implement VAT adjustments seamlessly.