Nigeria is on the verge of a significant tax policy shift as the National Assembly considers a bill proposed by President Bola Tinubu’s administration to increase the Value Added Tax (VAT) from 7.5% to 10% in 2025, with a gradual rise to 15% by 2030. While this move might seem like a necessary fiscal measure to boost government revenue, the timing and the potential impact on the economy raise serious concerns. Amid rising inflation, deepening poverty, and escalating energy costs, increasing VAT at this moment is an ill-advised decision that could further harm the very people it aims to support.
First, the economic backdrop of Nigeria today is dire. Inflation is at record highs, and essential goods and services have become increasingly unaffordable for most Nigerians. The proposed VAT increase will only exacerbate this problem. By nature, VAT is a regressive tax, which means it disproportionately affects lower-income individuals. Whether someone is wealthy or living in poverty, the tax on essential items such as food, medicine, and basic services is the same. For those already struggling to make ends meet, this increase will be devastating, pushing more Nigerians into extreme poverty.
The timing of this proposal could not be worse. Since Tinubu came into office, fuel prices have skyrocketed by over 400%, creating a cascading effect on transportation, goods, and services. Businesses, particularly small and medium enterprises, are buckling under the pressure of soaring energy costs, with many forced to shut down. An increase in VAT would add to their woes, further driving up costs, which would inevitably be passed on to consumers. This will lead to higher prices for goods and services, driving inflation even higher and worsening the cost-of-living crisis.
Moreover, businesses in Nigeria are already struggling with an unfriendly operating environment, where high costs of production and poor infrastructure have stifled growth. A VAT increase would discourage entrepreneurship and innovation, reducing the capacity of businesses to generate employment and contribute to economic recovery. As companies pass on the additional tax burden to consumers, the overall purchasing power of Nigerians will further decline, weakening the economy’s ability to recover from the current downturn.
In addition, the argument for increasing VAT based on boosting government revenues overlooks the critical issue of public trust in government spending. There is a widespread perception that funds generated through taxation are often not spent in ways that directly benefit the populace. Wasteful spending, corruption, and a lack of transparency in the use of public funds have left many Nigerians skeptical about the benefits of paying higher taxes. Increasing VAT would take money out of the hands of struggling citizens and businesses and place it in the coffers of governments at the three tiers that have often failed to provide essential public goods such as healthcare, education, and infrastructure.
Finally, while international bodies such as the International Monetary Fund (IMF) have recommended raising VAT, their perspective is often based on macroeconomic indicators rather than the lived realities of the Nigerian people. It is important to tailor fiscal policies to the specific context of the country, especially during periods of economic hardship. Raising taxes without addressing the structural inefficiencies and waste in government spending only increases the burden on ordinary Nigerians without providing a corresponding improvement in public services.
In conclusion, increasing VAT from 7.5% to 10% at this time is a misguided policy that risks deepening the economic challenges already faced by millions of Nigerians. Instead of imposing higher taxes, the government should focus on policies that promote economic growth, job creation, and poverty alleviation. A more equitable tax system, higher collection efficiency, combined with greater fiscal responsibility, would be a better approach to navigating Nigeria through this difficult period. The government must prioritize the needs of its citizens over short-term revenue gains if it is to build a sustainable and inclusive economy for now and the future.
