Nigeria: FG Poised to Focus More on Indirect Taxes in Upcoming Tax Regime

The Federal Government may shift its focus towards indirect taxes under the proposed tax regime outlined in the Taiwo Oyedele-led Presidential Fiscal Policy and Tax Reforms Committee’s report. If the National Assembly approves the recommendations, indirect taxes, such as those collected by entities in the supply chain (e.g., manufacturers and retailers), are expected to become a key revenue focus.

According to the committee’s report, the government’s preference for indirect taxes stems from their broad-based nature, ease of collection, and relatively lower economic disruption compared to direct taxes. The yet-to-be-ratified 39-page report emphasizes that indirect taxes should be progressive in terms of rates, exemptions, and compliance thresholds, ensuring fairness while protecting the tax base.

The report also suggests that any increase in indirect taxes should be balanced by a reduction in direct taxes where feasible, to moderate the overall tax burden. The adoption of technology to automate tax compliance is also highlighted, ensuring efficient administration both online and offline.

A major policy shift indicated in the report is a renewed focus on wealth redistribution. To protect lower-income citizens, essential items like food, health, and education will likely see reduced tax rates or exemptions, while non-essential goods may experience higher taxes to offset revenue losses. The move aims to protect vulnerable groups while ensuring that states, which receive 85% of VAT revenue, remain financially secure.

On social media, Taiwo Oyedele, the committee chairman, supported this approach by pointing to data from the National Bureau of Statistics (NBS). He explained that the decision to push for zero tax on basic household items is driven by the fact that such items account for over 70% of spending for most Nigerians. Categories such as rent, transportation, and small business transactions are also expected to be exempt from the proposed tax.

One of the most notable recommendations welcomed by the business community is the provision that businesses will receive full credit for the Value Added Tax (VAT) they pay on their assets and services. This is expected to reduce business costs and help moderate inflation, as companies will no longer have to pass on unrecoverable VAT costs to consumers.

Currently, many essential items, which make up 82% of the average household’s consumption, attract VAT under the existing tax regime. Moreover, businesses often face challenges in recovering VAT on their assets, leading to higher costs. The proposed reforms aim to alleviate these burdens through simplified processes and quicker VAT refunds.

The committee also advocates for a more respectful approach to taxpayer rights and obligations. Taxpayers, it argues, should have access to clear and timely information about their tax obligations and be entitled to prompt, courteous service from tax authorities. Additionally, taxpayers should have the ability to raise objections and receive responses within reasonable timeframes, ensuring fairness in tax administration.

The proposed tax reforms are designed to be ratified by the Federal Executive Council before being submitted to the National Assembly. They also stress the need for enhanced inter-agency cooperation, particularly in enforcing tax policies and international treaties.

At its core, the committee’s recommendations aim to guide the development of a tax system that supports Nigeria’s broader economic goals, including industrial growth, infrastructure development, and investment promotion. Key sectors such as tech and digital economies are expected to benefit from investor protection and incentives that encourage innovation and ease of doing business.

To enhance compliance, the committee urges the Organised Private Sector (OPS) and Trade Unions (TUs) to ensure their employees, suppliers, and contractors are registered with tax authorities and meet their tax obligations. These groups are also tasked with promoting tax education and integrating the informal sector into the tax system.

The media is called upon to play a vital role in promoting tax education, advocating for transparency in the use of tax revenues, and ensuring balanced reporting on tax policies. Through public engagement and advocacy, the media can help foster a tax culture rooted in fairness and accountability.

The new tax regime, once adopted, is expected to streamline tax processes, promote economic productivity, and expand Nigeria’s revenue base, while offering protections for both businesses and consumers.