Proposed VAT Reform by the Presidential Committee on Fiscal Reforms and Tax Policy — Our Position and Recommendations

Based on the limited information provided by the Presidential Committee, we present the following positions and recommendations:

1. Rejection of Proposed VAT Rate Increase:

We reject the proposed VAT rate increase on “non-essential items” due to its disproportionate impact on low-income households. This increase would exacerbate economic hardships and deepen inequality.

Recommendations:

· Cut unnecessary tax expenditures reliefs and waivers for multinationals and oil companies

· Strengthen property tax collection

· Raise VAT on luxury goods and services

· Target high net-worth individuals and strengthen compliance with income tax obligations, considering that in 2023, Nigeria generated N12.37 trillion in personal income taxes from 41 million (18.76% of population) taxpayers, compared to N88.29 trillion from only 24.8 million (41.4% of population) taxpayers in South Africa in 2023.

· Enhance tax administration through automation and IT to block leakages

Also, following the ECOWAS regional directive on VAT rate, the government should prioritise Nigeria’s unique economic situation and explore the alternative revenue sources mentioned above.

2. Clarity on Non-Essential Items:

The committee must provide clarity on items that constitute non-essential items. Understanding this is crucial because what is considered non-essential varies by context, gender, and age. For example, sanitary products may not be essential for men but are vital for women. Ambiguity around what qualifies as ‘non-essential’ makes it difficult to assess the likely impact of the proposed reforms. Without such clarity, the fairness of the proposed VAT reform is questionable. A detailed list of the ‘non-essential’ items will help the public understand how the government plans to recover revenue from zero-rated goods. The government must be transparent to garner public support and trust.

Recommendation:

· The Presidential Committee must provide a detailed list of items considered “non-essential.”

3. VAT Compliance Rate:

A cursory comparison of the provisions of the current VAT regime with the proposed regime is not enough. We need to understand where the current system falls short. This will help Nigerians grasp the fundamental implementation gaps and the Committee’s proposed closing strategy. If the compliance rate is low, the priority should be to enhance the collection efficiency by tackling these gaps and not to place further burdens on poor Nigerians.

Recommendation:

· The Presidential Committee should provide data on the current VAT regime’s compliance rate and specific challenges contributing to the weak implementation of current VAT exemptions.

4. Administrative Framework

The Committee, supported by the FIRS, has a duty to make available a clear and detailed framework for implementing the proposed reform. This framework is essential to ensuring transparency and consistency and reducing arbitrariness in enforcement. Providing this information will allow the public and businesses to evaluate and understand the proposed reforms thoroughly.

Recommendation:

· The Presidential Committee should work with the FIRS to develop and make public a standardised administrative framework for implementing the proposed VAT changes.

5. Consumption Tax Considerations

We need precise data showing the implications of ending the Consumption Tax and raising VAT. Discontinuing the consumption tax is not justified if it will increase inequality by further reducing the disposable income of the poor while benefiting the wealthy.

Recommendation:

· Decisions on Consumption Tax should be based on evidence of social benefits, costs, and fairness.

6. Equity and Gender Sensitivity:

As a regressive tax, VAT has the most adverse effects on the poor and marginalized groups, especially women, given their consumption patterns. Women spend a larger proportion of their income on items that may otherwise be considered generally non-essential, including, but not limited to, reproductive health, sanitary and hygiene products, and the basic needs of their children.

Recommendation:

· Any VAT reform should be inclusive, gender-sensitive, and extend beyond revenue generation to consider how VAT spending affects women.

We remain committed to advocating for policies that promote economic growth, fairness, and the well-being of all Nigerians. All the undersigned organisations hereby call on the Presidential Committee to address these concerns and work towards a VAT reform that is equitable, transparent, and beneficial to the nation.