Nigeria’s planned tax reforms will help ease inflation by reducing living costs for most households, according to presidential adviser Taiwo Oyedele, who pushed back against concerns that the proposals could worsen economic hardship in Africa’s most populous country.
After scrapping a costly fuel subsidy and twice devaluing the naira in his first year in office, President Bola Tinubu is now turning his attention to tax reform in his second year. While these economic measures have contributed to rising prices, Tinubu is aiming to bring inflation down to 15% by the end of 2024, from 34.8% in December.
Key to the government’s new strategy is an overhaul of the value-added tax (VAT) system. The plan includes raising VAT to 12.5% by 2026, streamlining its collection, and revising how revenue is shared between the federal and state governments.
Crucially, the proposed VAT increase will exempt essentials such as food and medicine, which make up about 82% of household spending. Oyedele said that only 18% of goods would be affected by the tax hike, arguing that most Nigerians would actually see lower prices.
“For the bulk of household spending, Nigerians will see a reduction in costs because VAT will be removed from essentials,” Oyedele said in an interview.
With a tax-to-GDP ratio of just 10.8% — one of the lowest in the world — Nigeria has historically relied heavily on borrowing to fund its budget. Oyedele believes the reforms will not only improve tax compliance but also bring the system in line with global standards.
He noted that VAT revenue may fall by 30% to 40% due to the wide-ranging exemptions. This, he argued, supports the claim that the reform won’t impose additional burdens on the public. “People are paying less. You can’t say people are paying more if VAT revenue is going down,” he said.
However, the reform plan has faced criticism from analysts and state governors. Adewunmi Emoruwa, CEO of public strategy firm Gatefield, warned that increasing VAT — similar to a hike in 2019 — could dampen consumer spending and hinder industrial growth.
“The government is putting pressure on people’s ability to spend,” Emoruwa said.
One particularly contentious proposal would increase the share of VAT revenue allocated to states that generate the most tax, from 20% to 60%. This has drawn opposition from northern governors, who fear it could deepen regional disparities.
In response, governors have proposed capping revenue-generating states’ share at 30%. Oyedele indicated the federal government is open to compromise, saying it will not resist the governors’ counter-proposal.
