TAIWO OYEDELE COMMITTEE PROPOSES VAT INCREASES TO COMPENSATE FOR TAX REFORMS

The aim of these reforms is to simplify Nigeria’s complex tax framework, enhance business competitiveness, and promote economic fairness.

After extensive consultations with stakeholders from both the public and private sectors, the Oyedele-led Presidential Committee on Fiscal Policy and Tax Reforms outlined its strategy in a recent public presentation.

The proposal includes removing several smaller consumption taxes that states levy independently. These taxes often overlap with federal VAT, creating a redundant financial burden on businesses and consumers.

According to Taiwo Oyedele, the committee’s chair, who clarified aspects of the reforms via his X (formerly Twitter) handle, stated that the goal was to streamline the tax system.

“Our goal is to streamline the tax system, making it easier for businesses to comply and for the government to administer. By consolidating these taxes into a single, more efficient VAT system, we can reduce administrative costs and increase overall tax compliance.”

Key highlights of the proposal include:

ISSUES IDENTIFIED:

• No Input VAT Credit: Businesses cannot claim input VAT on services and assets, increasing operational costs and cash flow issues.
• VAT on Basic Needs: Essentials such as food, education, and healthcare are not exempt or zero-rated, burdening the lower-income segments of the population.
• VAT Compliance for Small Businesses: The low VAT exemption threshold places a compliance burden on many small businesses.
• Multiplicity of Taxes: The presence of other consumption taxes in addition to VAT at the state level complicates the tax landscape.
• VAT on Exports: Exported services and intellectual property are taxed, which can hinder the competitiveness of Nigerian exports in the global market.

PROPOSED REFORMS:

• Full Input VAT Credit: Allowing businesses to claim input VAT would help reduce operational costs and improve cash flows.
• Exemption of Essentials from VAT: Removing VAT from basic food items, education, and healthcare aims to protect economically vulnerable populations.
• Harmonization of Consumption Taxes: Consolidating all consumption taxes into a single VAT could simplify the tax system and potentially resolve issues related to tax multiplicity.
• Exemption of VAT on Exports: Making exports of services and intellectual property zero-rated could enhance the competitiveness of Nigerian exports.
• Increased VAT Exemption Threshold for Small Businesses: Raising the threshold would reduce the burden of VAT compliance on small businesses.
• Enhanced VAT Refund Process: Streamlining the refund process would alleviate working capital constraints for businesses.
• Introduction of VAT Focalization and E-Invoicing: These measures aim to combat tax evasion and make the system more equitable for honest businesses.
• Adjustment of VAT Rate: A selective increase in the VAT rate for non-exempt items is proposed to counterbalance potential revenue losses from other reforms.

REBALANCING ACT:

Experts suggest that this rebalancing act could bolster consumer spending on basic necessities while ensuring that the tax burden is shared more equitably across different income groups.

“The proposed adjustments are designed to protect the poor while asking more from those who can afford to contribute more,” Oyedele explained.

The proposal also includes measures to promote exports by removing VAT on exported services and intellectual properties, a move aimed at boosting Nigeria’s non-oil exports.

Other suggested reforms include enhancing the VAT refund process and introducing electronic invoicing to curb evasion.

It is important to note that the committee’s proposal is not yet government policy but serves as a recommendation to the Nigerian government.

It will likely undergo further review and discussion among policymakers before any legislative action is taken.