Nigerians fear VAT hike could further stoke inflation – Survey

Nigerians are having growing concerns that the plan to progressively increase the Value Added Tax (VAT) up till 2027 could further raise the inflationary trend which is already at a near three decade high.

A new report by Lagos-based data and intelligence firm, SB Morgen, revealed that many Nigerians were aware of the proposed reforms and generally viewed them favourably, particularly regarding the potential benefits for their businesses.

“However, a significant concern was raised regarding the gradual increase of the Value Added Tax (VAT) rate from 7.5% to 15% by 2027. Respondents feared this tax hike could exacerbate inflationary pressures,” the survey report said..

But this is contrary to the position of Taiwo Oyedele, chairman of the Presidential Tax Policy and Fiscal Reforms who said in a recent statement that the VAT reforms would slow inflation contrary to the views that it would stoke prices.

Oyedele argued that the policies, aimed at overhauling Nigeria’s tax system, would bring the needed reliefs for the citizens that are reeling from a cost-of-living crisis fuelled by the twin reforms implemented mid last year.

“The VAT reform, including the proposed increase in VAT rate, is part of a package involving several measures designed to reduce, NOT increase prices and therefore will not lead to inflation,” Oyedele explained in a question-and-answer tweet on X last Friday.

Nigeria is currently grappling with a heightening inflationary pressure that quickened to 33.88 per cent in October after slowing for two consecutive months in July and August.

With fuel prices still high and food inflation yet to be anchored, inflationary trends are expected to print higher, albeit marginally in November.

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The reforms, consisting of four bills (Nigerian Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, the Nigeria Tax Bill, and the Joint Revenue Board Establishment Bill) awaiting legislative action could potentially reduce the tax burden for 90 per cent of Nigerian workers and streamline tax administration.

If implemented, the reforms could provide the needed relief for low- and middle-income earners by reducing tax pressures, potentially improving disposable incomes and consumer spending.

But various voices, especially from the Northeast and Northwest geopolitical zones, have expressed concerns about the impact of the tax reforms on economic equity and regional development, leading to its suspension by the Senate to finetune any grey areas.

Against this backdrop, SBM surveyed a small sample of respondents in both the formal and informal sectors to gauge public opinion on the current tax system and proposed reforms.

The data-focused firm adopted questionnaires, interviews, and observations as its research methodology, and employed qualitative and quantitative data collection methods.

The survey, conducted in Abuja, Anambra, Bauchi, Cross River, Kano, Lagos, Oyo and Rivers states, sought to have a response from each geopolitical zone and explored respondent knowledge of the tax reform bills, their views on the public outcry and opposition from Northern politicians, the perceived urgency of passing the bills, and the anticipated impact on their businesses.

Meanwhile, according to the survey, some respondents recognised that the tax reform bills could incentivise states, particularly in the North, to enhance their revenue generation capabilities, fostering greater industrial competitiveness.

They stated that the bills should be passed promptly, provided that contentious clauses and issues related to the VAT revenue-sharing formula are adequately addressed.

However, respondents emphasised the critical need for increased public engagement, awareness, and education regarding the tax reform bills, suggesting that this outreach effort should be conducted across various media channels, including the use of local dialects, to effectively communicate the potential benefits and drawbacks of the proposed reforms.

Source; BusinessDay