A recent survey by Africa-focused data analytics firm SB Morgen, has revealed mixed reactions among Nigerians regarding the Federal Government’s proposed Value Added Tax (VAT) hike. The proposal, which calls for raising the rate from 7.5% to 10% in 2025 and then to 15% by 2027 or 2030, has generated a lot of discussion, with concerns over Inflation taking center stage. The proposed VAT increase is a component of the government’s larger plan to increase income and close budget shortfalls.
However, Nigerians are worried that VAT rates increase would make the nation’s already high inflation rate worse and exert more pressure on household budgets. As per the survey, many individuals are concerned that this approach may disproportionately affect low and middle-income earners, who are more susceptible to price rises for consumer items. Concerns are also being raised by businesses, especially small and medium-sized businesses (SMEs), who may have to incur additional operational expenses as suppliers and service providers adapt to the higher tax burden.
Increase in VAT may result in a drop in consumer demand.
Respondents who backed the legislation’s approval emphasized how crucial it is to address problems like the VAT revenue-sharing mechanism and ensure the public is informed about the changes. Economics experts have weighed in, highlighting both the possible advantages and disadvantages of the planned VAT increase. Critics contend that, despite being viewed as an essential measure to boost government revenue, the increase may result in a drop in consumer demand and purchasing power, especially in a nation where inflation has remained persistently high.
Despite these objections, proponents claim that the increases are justified given Nigeria’s VAT rate is still low when compared to many other nations. Taiwo Oyedele, the chairman of the Presidential Tax Policy and Fiscal Reforms Committee, has noted that VAT reforms would reduce inflation and offer economic relief, but many Nigerians are still doubtful of the government’s capacity to fulfill these commitments in light of previous instances of opaque public fund management. Such an increase in VAT in Nigeria was last recorded in February 2020, when it was raised from 5% to 7.5%.
High poverty rate is the main reason for opposition.
It was the first adjustment to Nigeria’s VAT rate since it was initially introduced in 1993 and was implemented despite concerns about its potential impact on inflation and the cost of living. With the 2020 increase, Nigeria’s VAT rate is now more in line with the 18% West African average. For those opposed to raising the VAT rate, the country’s high Poverty rate has always been the main argument. It is estimated that as of 2018, more than 86 million Nigerians, or 46.7% of the country’s total population, were living below the poverty line, which is defined as making less than $1.90 a day.
Any rise in the consumption tax would therefore practically affect these individuals more and might potentially be the catalyst for a large number of additional people to fall below the poverty line. The timing, scope, and possible repercussions of the first phase of the VAT hike, which the government plans to implement in 2025, are still the main topics of discussion. The proposed VAT rise is expected to continue to be a controversial topic in the months to come, as millions of Nigerians are already facing serious difficulties due to inflation.
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Currently, the National Assembly has temporarily suspended the proposed VAT adjustment, which is part of the Tax Reform Bills. The Nigerian Senate’s decision emphasizes the complexity of enacting fiscal reforms in a setting that is both politically and economically challenging. The Senate suspended hearings on the bill until next year to give time for crucial political interactions and talks to ensure the bill’s passage. This action reflects an attempt to strike a balance between addressing public concerns and the need for reform.