By Ope Adetayo
ABUJA (Reuters) -Nigeria’s proposed tax overhaul will help curb inflation by lowering costs for most households, presidential adviser Taiwo Oyedele said on Friday, dismissing criticism that the plan risks worsening economic hardship in Africa’s most populous nation.
After ending a costly petrol subsidy and twice devaluing the currency in his first year in office, President Bola Tinubu has shifted his focus to reforming the tax system in his second year. While the measures have sparked price pressures, Tinubu aims to reduce inflation to 15% this year from 34.8% in December.
Oyedele defended the plan to almost double the value-added tax (VAT) to 12.5% by 2026, streamline its collection, and overhaul revenue-sharing between federal and state governments.
The proposals include exempting food, medicine and essentials – which account for 82% of household spending – from VAT, a consumption tax, which Oyedele said would lower costs for “the majority of Nigerians.” Only 18% of goods would see price hikes, he said.
“On the majority of consumption by the majority of households, they will see a decline in their prices because the VAT is being taken out,” Oyedele said in an interview.
Nigeria’s tax-to-GDP ratio of around 10.8% ranks among the world’s lowest, forcing the government to rely on borrowing to fund the budget.
The overhaul will boost compliance and align Nigeria with global tax standards, Oyedele said, adding that VAT revenue could drop 30% to 40% with the tax proposals due to the expanded exemptions compared with a decline of 60% if the rate remains unchanged.
“So the fact is that people are paying less. It cannot be that they are paying more and VAT revenue is going down,” he argued.
But critics, including state governors and analysts, remain skeptical. Adewunmi Emoruwa, CEO of public strategy firm Gatefield, said the VAT increase, similar to a 2019 hike, risked stifling consumption and industry growth.
“The government is putting pressure on people’s ability to spend,” he said.
A contentious proposal to allocate 60% of VAT revenues to the states generating the revenues, up from 20%, drew a backlash from the country’s northern governors who fear regional inequality.
Oyedele said the federal government would not oppose a counter-proposal from the governors this month that would cap the revenue-generating states’ shares at 30%.
(Reporting by Ope Adetayo; Writing by Elisha Bala-Gbogbo; Editing by Hugh Lawson)
