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The Nigeria Economic Summit Group (NESG) has urged the Federal Government to increase the Value-Added Tax (VAT) rate as part of its ongoing tax reform initiatives to prevent potential revenue shortfalls.
During a recent media session in Abuja, Dr. Tayo Aduloju, Chief Executive Officer of NESG, emphasized that while VAT system reforms are crucial, maintaining the current 7.5% VAT rate without an increment could significantly impact government revenue.
“Without those rate hikes, the government might lose some revenue,” Aduloju stated, highlighting the need to align tax policies with national fiscal objectives.
Balancing Tax Reforms and Revenue Growth
Aduloju stressed that Nigeria’s tax reform efforts must strike a delicate balance between simplifying the tax system and ensuring revenue stability. He warned that merely reducing the number of taxes without adjusting VAT rates could weaken the government’s financial base, potentially undermining ambitious budgetary plans.
“If we succeed in reforming the VAT system, even if we postpone the rate hike by three years, it would still be a win. This would enhance efficiency and attract more companies to invest in Nigeria,” he added.
Beyond tax reforms, Aduloju highlighted the need to unlock investment opportunities by addressing legal, regulatory, and policy challenges that hinder foreign direct investment (FDI).
Monetary and Fiscal Coordination Needed to Address Inflation
The NESG CEO also called for better alignment between fiscal and monetary policies to address inflationary pressures, particularly those driven by rising energy costs. He pointed out inefficiencies in Nigeria’s downstream petroleum sector as a key contributor to persistent price increases.
Opposition to VAT Increase
Despite NESG’s recommendation, the proposed VAT hike has faced strong opposition from key stakeholders, including the Trade Union Congress (TUC) and the Nigeria Governors’ Forum (NGF). These groups argue that increasing VAT would exacerbate the economic hardship already faced by Nigerians.
Additionally, the House of Representatives has rejected a proposed staggered VAT increase to 15% by 2030, opting instead to retain the current 7.5% rate.
As the Federal Government continues deliberations on tax reforms, the debate over VAT adjustments remains a crucial factor in shaping Nigeria’s fiscal sustainability and economic resilience.
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