Experts have warned the government against increasing value-added tax (VAT) in a desperate move to increase public revenue.
The Fiscal Policy and Tax Reform Committee led by Taiwo Oyedele, in its 2024 National Tax Policy (NTP) proposal submitted to the government, proposed among other things, an increase in VAT to generate more revenue.

Earlier in March this year, an international business research firm, Economist Intelligence Unit (EIU), in its Country Report, predicted that the federal government could raise the VAT to 15 per cent from the current 7.5 per cent to enable it to fund its fiscal deficit and debt service obligations.

This comes as Nigeria is currently weighed down by a high debt burden amounting to N97.34 trillion and is expected to rise to over N107.38 trillion by the end of 2024 following the approval of fresh borrowings.

The country is also facing a heavy debt service obligation, which the International Monetary Fund (IMF) says is gulping 56 per cent of Nigeria’s tax revenue.

However, some economists believe that the VAT Increase could be an additional burden on investors and businesses already grappling with the challenge of multiple taxation and impact adversely on profit margins, investment growth, consumer purchasing power and competitiveness.

Professor Godwin Oyedokun of Lead City University said raising the VAT is a complex issue with both potential benefits and drawbacks, especially considering the current inflationary environment.

He said: “Though a higher VAT rate would generate more tax revenue for the government which could be used to fund social programmes, infrastructure development and other public services are likely to pass on the increased VAT costs to consumers through higher prices, potentially fueling inflation.

“This would disproportionately hurt low-income earners who spend a larger portion of their income on necessities.”
He said that rather than increasing the rate, the government could focus on improving VAT collection efficiency to capture a larger share of the existing tax base.

“The government can also expand the range of goods and services subject to VAT. That could generate additional revenue without necessarily increasing the rate,” he said, adding that the government could identify areas where spending can be reduced, freeing up resources for essential services.

Dr Titilayo Fowokan, a council member of the Chartered Institute of Taxation of Nigeria (CITN), said VAT increase is long overdue, but that there would always be resistance amid economic instability, which has worsened with the exchange rate volatility and removal of fuel subsidy.

“These two economic issues have translated into the ripple effect of the increase in the cost of goods and services and escalated inflation in all areas, including food inflation.

“Though the increase has been proposed in the 2024 National Tax Policy, the government needs to look at other fiscal policy interventions to cushion the effect of the increase in VAT that finds itself into the cost of consumption and doing business in Nigeria. Ease of doing business index could be impacted by this proposed increase unless the economic situation of the country improves,” she said.

For Tommy Okon, National Vice President of the Trade Union Congress (TUC), no sane government will continue to introduce economic policies that are impoverishing the masses.

“As we speak, we are yet to come out of the fuel subsidy removal and electricity tariff. Raising the VAT rate will amount to economic and policy enslavement. Nigerian problems cannot be solved overnight. The government should know that the people must survive first. Otherwise, there is no moral justification for governance,” he said.