In today’s evolving economic landscape, Value Added Tax (VAT) has become a central topic in Nigeria’s fiscal policy discussions. With the federal government actively pursuing tax reforms to boost revenue and reduce reliance on oil, VAT is increasingly recognized as a powerful tool for sustainable development.
What is VAT?
VAT is a consumption tax levied on goods and services at each stage of the supply chain—from production to the point of sale. Ultimately, the end consumer bears the cost, while businesses act as tax collectors, remitting the tax to the government.
In Nigeria, VAT is currently set at 7.5%, following its increase from 5% in 2020. This rate applies to most goods and services, although some items such as basic foodstuffs, educational materials, and medical products are exempt.
Why is VAT Important?
- Revenue Generation:
VAT is a major source of non-oil revenue for the Nigerian government. As efforts to diversify the economy intensify, VAT collection helps fund infrastructure, healthcare, education, and social programs. - Efficiency and Transparency:
Compared to other taxes, VAT is relatively easy to administer and less susceptible to evasion. The push toward digitization of tax systems is making VAT collection even more efficient and transparent. - Encouraging Compliance:
The use of electronic invoicing and data analytics is improving compliance and reducing tax leakages. This strengthens the overall tax system and ensures businesses play their part in national development.
President Bola Tinubu’s administration has emphasized VAT reform as part of broader fiscal policy shifts. With the establishment of the Presidential Committee on Fiscal Policy and Tax Reforms, there’s renewed focus on simplifying tax processes, closing loopholes, and improving collaboration between federal and state tax authorities.
The government is also promoting harmonization of VAT administration, aiming to avoid duplication and confusion, especially for businesses operating across multiple states.
While VAT has great potential, challenges remain:
- Public awareness is still low, especially among small businesses and informal sector operators.
- Multiple taxation and overlapping tax jurisdictions can deter compliance.
- Economic pressure from inflation and rising costs can make VAT unpopular among citizens already burdened by high living expenses.
What’s Next for VAT in Nigeria?
Looking ahead, VAT will play a crucial role in building a self-reliant and equitable economy. Citizens and businesses must engage proactively, while the government ensures that the system is fair, inclusive, and effectively implemented.
With the right policies, digital tools, and a commitment to transparency, VAT can become not just a tax—but a lever for national development.
How has VAT affected your business or household? Are you aware of what’s taxable and what’s exempt? Share your thoughts in the comments below.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices. You can also reach us via WhatsApp at +2348038460036.
