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May 27, 2024
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Tax Panel Proposes Removal of VAT on Basic Food, Others

The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has confirmed the plan of his committee to propose the removal of Value Added Tax on some basic food, educational and healthcare items.

Oyedele revealed this on Wednesday via his X handle (formerly Twitter) where he tried to clarify comments earlier made at a policy exposure and impact assessment session organised by the committee.

While refuting claims that his committee is proposing a rate hike, Oyedele said that his committee had instead proposed, “Full input VAT credit for businesses to reduce their cost of doing business and minimize the strain on their cash flows; remove VAT on an expanded list of basic food, educational and healthcare items to protect the poor; harmonize all consumption taxes into one (VAT only) and adjust the revenue-sharing formula in favour of states to address a multiplicity of taxes.

“Removal of VAT on the export of service and intellectual property to promote non-oil exports, increase the threshold for VAT exemption for small businesses and enhance the VAT refund process to reduce the strain on working capital of businesses. Introduce VAT fiscalisation and electronic invoicing to curb evasion which makes honest businesses uncompetitive and consequential upward adjustment to the VAT rate on items not exempted to avoid a significant drop in revenue.”

He added the committee’s proposals seek to achieve the goal of streamlining the tax system, thereby “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.”

Proposals involving reduction, Oyedele disclosed, in companies’ income tax rate, and increased exemption threshold for personal income tax were also discussed.  

Highlighting some of the challenges with the tax system, Oyedele said, “Nigeria’s VAT system places a huge burden on businesses as they are not allowed to claim the input VAT incurred on services and assets. Some items which constitute basic consumptions (food, education, and healthcare) are liable to VAT rather than being exempt or zero-rated.”

He added that small businesses have to contend with VAT compliance given the existing low VAT exemption threshold for small businesses and that many states charge other forms of consumption taxes in addition to VAT thereby creating a multiplicity of taxes.

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