An official claims that the planned tax reform in Nigeria will reduce inflation

Presidential adviser Taiwo Oyedele dismissed accusations that the proposed tax revamp in Nigeria will deepen economic suffering in the most populous country in Africa, saying on Friday that it would help contain inflation by decreasing costs for the majority of people.

In his second year in power, President Bola Tinubu has turned his attention to tax reform after cutting a hefty gasoline subsidy and depreciating the currency twice in his first year. Tinubu wants to lower inflation from 34.8% in December to 15% this year, despite the fact that the policies have caused price pressures.

Oyedele defended the proposal to restructure revenue-sharing between the federal and state governments, expedite the collection of the value-added tax (VAT), and nearly quadruple it to 12.5% by 2026.

As 82% of household expenditures are on food, medication, and necessities, the proposals would exclude them from VAT, a consumption tax, which Oyedele claimed would reduce expenses for “the majority of Nigerians.” He said price increases will only affect 18% of goods.

“On the majority of consumption by the majority of households, they will see a decline in their prices because the VAT is being taken out,” Oyedele stated in a telephone interview.

Nigeria has one of the lowest tax-to-GDP ratios in the world, at about 10.8%, which forces the government to borrow money to pay for the budget.

According to Oyedele, the reform will increase compliance and bring Nigeria into line with international tax norms. He also mentioned that the tax plans might result in a 30% to 40% decrease in VAT income because of the increased exemptions, as opposed to a 60% fall if the rate stays the same.

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As a result, people are really paying less. “They can’t be paying more while VAT revenue is declining,” he contended.

However, other critics, including as analysts and state governors, are still dubious. Similar to a 2019 hike, Adewunmi Emoruwa, CEO of public strategy consultancy Gatefield, stated that the VAT increase ran the danger of impeding industrial growth and consumer spending.

“The government is putting pressure on people’s ability to spend,” he stated.

The country’s northern governors, who are concerned about regional inequality, reacted negatively to a controversial proposal that would have sent 60% of VAT income to the states that generate them, up from 20%.

A counterproposal from the governors this month that would cap the revenue-generating states’ shares at 30% would not face opposition from the federal government, according to Oyedele.