The Nigeria Economic Summit Group (NESG) has cautioned that the Federal Government could face significant revenue shortfalls if it does not proceed with increasing the Value Added Tax (VAT) rate as part of the ongoing tax reform process.
Dr. Tayo Aduloju, the Chief Executive Officer of NESG, made this statement during an interactive media session in Abuja over the weekend. He stressed that while reforms to the VAT system are crucial, keeping the current VAT rate without an increase could result in considerable revenue loss for the government.
Aduloju commented, “Without those rate hikes, it means that the government might lose some revenue.” He explained that the ongoing fiscal and tax reforms aim to address the complexities of the tax system while ensuring sufficient revenue generation to support the government’s ambitious budget plans.
He further emphasized that the current tax reform process must strike a balance between simplifying the tax system and increasing the VAT rate to ensure revenue stability. “Simply reducing the number of taxes without adjusting the VAT rate could weaken the government’s revenue base,” Aduloju noted.
Aduloju also suggested that even if the VAT rate hike is postponed for up to three years, it would still be a positive outcome, as it would demonstrate efficiency and help attract more foreign investment into Nigeria. “If we win on the reform of the VAT system, and even if we postpone the rate hike by three years, it will still be a win,” he said.
While acknowledging the need for tax reforms to reduce the multiplicity of taxes, Aduloju stressed that these reforms should not come at the expense of revenue generation. He also highlighted the importance of unlocking investment opportunities to boost revenue, pointing out that Nigeria has ample assets that could attract foreign direct investment if legal, regulatory, and policy barriers were addressed.
Additionally, Aduloju called for better coordination between monetary and fiscal policies to tackle inflation, particularly those caused by high energy costs. He emphasized that energy security plays a critical role in managing inflation, noting that inefficiencies in the downstream petroleum sector contribute to persistent price increases.
The proposed VAT rate hike has faced opposition from the Trade Union Congress of Nigeria and the Nigeria Governors’ Forum, both of which warn that such a move could exacerbate the economic hardships experienced by many Nigerians.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036
