ABUJA, Jan 31 – The Nigerian government’s proposed tax overhaul is expected to curb inflation and lower costs for most households, according to presidential adviser Taiwo Oyedele. However, the plan has sparked controversy, with critics arguing it could deepen economic hardship in Africa’s most populous nation.
President Bola Tinubu, after scrapping the petrol subsidy and implementing two currency devaluations in his first year, has now turned his attention to tax reforms. With inflation at 34.8% in December, his administration aims to reduce it to 15% by the end of the year.
A key aspect of the reform is a plan to nearly double the value-added tax (VAT) to 12.5% by 2026 while streamlining its collection and revising revenue-sharing formulas between federal and state governments. According to Oyedele, the proposal will exempt essential goods—including food and medicine—that account for 82% of household spending, ensuring that only 18% of goods would be subject to higher taxes.
“For most households, the cost of living will decrease because VAT is being removed from essential items,” Oyedele said. He argued that with the planned exemptions, VAT revenue could drop by 30% to 40%, as opposed to a projected 60% decline if the current rate remains unchanged.
Nigeria’s tax-to-GDP ratio, at approximately 10.8%, ranks among the lowest globally, forcing the government to rely on borrowing to fund its budget. Oyedele said the proposed reforms would improve tax compliance and align Nigeria with international tax standards.
Despite these assurances, opposition to the plan remains strong. Critics, including state governors and economic analysts, fear that raising VAT could hurt consumption and business growth. Adewunmi Emoruwa, CEO of public strategy firm Gatefield, likened the move to a 2019 VAT increase that, he argues, stifled household spending and economic activity.
“The government is placing additional strain on people’s purchasing power,” Emoruwa said.
Another contentious element of the proposal involves changing VAT revenue allocation, increasing the share given to states that generate the tax from 20% to 60%. This has drawn backlash from northern governors, who argue that such a shift would exacerbate regional economic disparities. In response, Oyedele said the federal government is open to negotiations and is considering a counter-proposal from the governors to cap the revenue-generating states’ share at 30%.
