Paused: Reform Bill proposes VAT rise from 7.5% to 10%
A Bill to raise immediately VAT by 2.5% to 10%, and then to 15% by 2027, has been put on pause by the Nigerian Senate on 4 December 2024. It will return to debate early in the new year.
There has been no commitment to the reduction in the fuel subsidies which is largely seen as distorting the oil-revenue dependent economy. The fuel and VAT rises are seen as necessary preconditions to an IMF-debt programme.
14 Oct: National Assembly to review 2.5% VAT rise bill
The Nigerian National Assembly is reported to be reviewing a Bill to hike VAT from 7.5% to 10%. Plus a further rise to 12.5% by 2029. The bill also proposes a reduction in the company income tax (CIT) to 27.5 percent from 30 percent.
VAT was last increased from 5% to 7.5% in February 2020.
Sept 2024: Fiscal Committee report says large deficit needs VAT rise to 10% now; and 15% by 2030
The Nigeria Federal Government is reviewing a Presidential Committee Fiscal Policy and Tax Reforms report on VAT. This includes an immediate rise in VAT from the current 7.5% to 10% at the start of 2025. Then a rise to 15% by 2027 or 2030.
The report is now with President Bola Tinubu. It is anticipated that a Bill to implement these changes will soon be presented to the National Assembly parliament. These would be zero-rated. The plan also includes:
- Cuts on basic supplies such as food, health card, education, housing and public transport.
- Phasing out a number of sundry consumption taxes.
- A relatively high VAT registration threshold would lift over 90% of businesses out of the VAT net as the current VAT regime requires many small businesses to charge VAT, adding complexity and increasing compliance costs.
- A process of speedier VAT credit refunds would also be introduced.
These hikes are based on the country exceeding its own legal constraint of a maximum budget deficit of 3% per annum. The deficit is now above 4% and not expected to fall soon.
The country is struggling with high inflation, dwindling FX reserves and shaky naira currently. The Economics Intelligence Unit (part of The Economist newspaper) is making the forecast consumption tax rise as Nigeria has one of the lowest VAT rate in the West Africa region:
- Cameroon – 19.5%
- Chad – 18%
- Niger – 19%
- Benin – 18%
Feb 2020 VAT rise from 5% to 7.5%
Nigeria implemented a rise in its standard Value Added Tax rate from 5% to 7.5% on 1 February 2020. This rise had originally been scheduled for January. There are no reduced VAT rates in Nigeria.
To help support smaller businesses, a VAT registration threshold of NGN 25million (approx. €52,000 or $61,000) per annum. FIRS, Federal Inland Revenue Service, also increased the penalty for late filing of returns to NGN 50,000 for the first month and NGN 25,000 for each subsequent month of default.
Nigeria’s 2020 rise takes its VAT rate closer to the West African average of 18%. The key point of those against an increase in the VAT rate has always been the high poverty rate in the country. As at 2018, over 86 million Nigerians (46.7% of the population) are reputed to be living below the poverty line, defined as earning less than $1.90 per day. Therefore, any increase in consumption tax would effectively impact these people more, and might even be the basis for many more people to move below the poverty line.
