THE VAT REFORM PROPOSAL

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By Taiwo Oyedele

The Presidential Fiscal Policy and Tax Reforms Committee’s proposal is to reduce the VAT rate to zero per cent (0%) on food, health, education, and exemption for rent, transportation, and small businesses. Data by the NBS shows that these are the areas where the average household spends almost all their income, meaning their VAT burden will reduce.

The upward rate adjustment is on non essential items to partly offset the impact of the reduction in rate and exemption for essential items ensuring that the masses are protected, and providing some cushion for states who earn 85% of VAT revenue.

Businesses will also get full credit for the VAT they pay on their assets and services, thereby lowering their overall costs and moderating inflation.

See further comparison below:

CURRENT VAT REGIME

1. Many essential items constituting 82% of the total consumption of an average household attract VAT while some are exempt.
2. Other forms of consumption taxes exist in some states in addition to VAT.
3. Businesses are unable to recover VAT on their assets and services, thereby increasing their costs, which they pass on to consumers.
4. Many small businesses are required to charge VAT on their sales.
5. VAT refunds require extensive tax audits and take a long time to process.
6. Sharing of VAT revenue to and among states is contentious.
7. Export of services and intellectual properties bear VAT making their export less attractive.

PROPOSED VAT REGIME

1. Zero (0%) VAT on food, education, healthcare. Exempt rent, transport, etc. Increase rate on non-essential items to partly offset reduction on essential items.
2. Discontinue with other consumption taxes and charge only VAT where applicable.
3. All businesses will be able to recover VAT on their assets and services, thereby lowering their overall costs and reducing inflation.
4. Over 97% of SMEs will be exempted from charging VAT on their sales.
5. VAT refunds will be faster without the need for extensive tax audits to help business cash flow.
6. Sharing of VAT revenue to and among states to be more equitable.
7. Export of services and intellectual properties will attract 0% VAT to facilitate export growth.

Do you support the proposed VAT reform outlined above?

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