The Organised Private Sector (OPS) has voiced strong opposition to the proposed increase in the Value Added Tax (VAT) as outlined in the new tax bills, warning that it could deter investments and strain the economy.
During a two-day public hearing on tax reforms, organized by the Senate Committee on Finance at the National Assembly Complex in Abuja, stakeholders from various sectors called for a reassessment of the proposed tax measures.
Concerns Over VAT Hike
The Association of Capital Market Academies of Nigeria (ACMAN) and the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) have raised concerns over the planned VAT increase. The proposal seeks to raise VAT from the current 7.5% to 10% in 2025, 12.5% in 2026, and 15% by 2030.
Speaking at the hearing, ACMAN President, Prof. Uche Uwaleke, emphasized the negative impact such an increment could have on the capital market and economic growth. “The proposal to increase VAT will raise transaction costs in the Nigerian capital market and discourage investments. This increase, coming at a time of inflationary pressure, is not advisable,” he stated.
Tax Reform Bills Under Scrutiny
The proposed tax reform bills, including the Joint Revenue Board Bill, the Nigeria Revenue Service Establishment Bill, the Nigeria Tax Administration Bill, and the Nigeria Tax Bill, were passed for a second reading in the Senate. However, they faced significant resistance in the House of Representatives, particularly from northern lawmakers who argued that the reforms favored certain regions over others.
Opposition from the Northern Governors’ Forum, the Nigeria Governors’ Forum, and the National Economic Council led to a delay in the legislative process. Prominent northern leaders, including former Vice President Atiku Abubakar, and governors such as Bala Mohammed of Bauchi State and Babagana Zulum of Borno State, criticized the bills for their perceived bias.
Revised VAT Sharing Formula
A compromise was reached in January between the Nigeria Governors’ Forum and the Taiwo Oyedele-led tax reform committee, proposing a new VAT revenue-sharing formula: 50% based on equality, 30% on derivation, and 20% on population. This adjustment helped to pacify some of the northern opposition, allowing the House to reconsider the bills.
Sectoral Reactions and Recommendations
- ACMAN’s Stand: While ACMAN supports sections of the tax reforms that offer fiscal incentives to the capital market, it opposes the VAT hike. It also welcomes the proposed reduction of the corporate income tax rate from 30% to 27.5% in 2025 and 25% in 2026, which it believes will improve Nigeria’s business climate.
- NACCIMA’s Position on Free Trade Zones: NACCIMA has called for the removal of sections of the tax bills affecting Free Trade Zones (FTZs), arguing that businesses within these zones already contribute to the economy and are only exempt from income tax.
- ANAN’s Concern Over TETFund: The Association of National Accountants of Nigeria (ANAN) opposed the proposed termination of the education tax funding the Tertiary Education Trust Fund (TETFund) by 2030, citing its critical role in financing higher education infrastructure.
- RMAFC’s Endorsement: The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) expressed full support for the tax reforms but urged the Senate to consider governors’ recommendations on VAT distribution.
Senate President Calls for Collaboration
Senate President Godswill Akpabio emphasized the need for synergy between the federal, state, and local governments, alongside the private sector, to establish an efficient tax system.
“We must leave behind outdated tax practices and embrace a tax administration that is robust, transparent, and business-friendly,” he remarked.
Arewa Consultative Forum’s Submission
The Arewa Consultative Forum (ACF) submitted a comprehensive report to the National Assembly, providing recommendations for balancing tax reforms to benefit all regions. The report suggested clarifying the term “derivation” in VAT distribution, reducing the extensive powers given to the Joint Revenue Board chairman, and ensuring the retention of funding for education and technology agencies like TETFund and NITDA.
As stakeholders continue discussions, the final decisions on the tax reforms will shape Nigeria’s fiscal policies and economic trajectory for the coming years.