According to Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, the committee has proposed increasing the Value-Added Tax (VAT) rate from the current 7.5 percent and reviewing the VAT revenue sharing formula.
Speaking at a policy exposure and impact assessment session organized by the committee, Oyedele addressed concerns over the impending review, emphasizing that it would not disproportionately affect the poor and small business owners.
Although the exact percentage of the proposed increase was not disclosed, the current VAT rate is 7.5 percent. The federal government raised VAT from five percent to 7.5 percent in February 2020 following the passage of the 2020 Finance Act.
Oyedele outlined that the proposed VAT reform would include exempting basic consumption items such as food, education, medical services, and accommodation from VAT, ensuring that the increase does not burden the poor and small businesses.
He reassured that businesses had been consulted, and they indicated they would not raise product prices in response to the VAT adjustment. The committee aims to implement VAT reform without leading to commodity price hikes.
Additionally, the committee proposed revising the revenue-sharing formula, suggesting that state and local government VAT revenue be increased to 90 per cent while reducing the federal government’s share from 15 to 10 per cent.
According to Section 40 of the VAT Act, the federal government receives 15 percent, states receive 50 percent, and local governments receive the remaining 35 percent of VAT revenue.
Explaining the rationale behind the adjustment, Oyedele highlighted that VAT is primarily a state tax. He noted that the proposed changes aim to address the perceived imbalance in the current revenue-sharing framework, which allocates a significant portion to the federal government.
