By Abdulrauf Aliyu
Imagine Nigeria’s economy as a car, with the government as its driver and taxation as the engine. The roads ahead represent the infrastructure, opportunities, and policies that enable progress. When the roads are riddled with potholes—symbolizing inflation, inequality, and inefficiency—a responsible driver would focus on repairs. Instead, the proposed VAT hike is akin to overloading the car with weight, worsening its performance without fixing the underlying issues.
The Federal Government’s plan to increase VAT from 7.5% to 15% over the next few years is being justified by comparisons to neighboring countries like Benin Republic, where VAT is 18%. While this may appear logical, the reality tells a different story. In Benin, inflation is a modest 3%, but in Nigeria, it soars above 33%, devastating purchasing power and deepening hardship. This disparity means the average Nigerian already bears a far heavier tax burden in real terms, even before the proposed hike.
VAT is inherently regressive, disproportionately affecting low-income earners who spend most of their income on necessities. For a struggling Nigerian family, an increase in VAT on food, transportation, and basic goods could mean the difference between eating and going hungry. In contrast, wealthy individuals, who spend a smaller portion of their income on VAT-eligible goods, feel minimal impact. By raising VAT in an economy where over 40% of citizens live below the poverty line, the government risks deepening inequality and economic exclusion.
Proponents of the hike argue that it will boost government revenue, addressing fiscal challenges. However, this is a short-sighted solution. Higher VAT increases prices across the board, further driving inflation and weakening consumer spending—the lifeblood of small businesses and informal traders. The result is a vicious cycle: a dwindling tax base, weakened economic activity, and more hardship for ordinary Nigerians.
This approach ignores a more equitable path—progressive taxation. Instead of burdening the already struggling majority, Nigeria must focus on policies that ensure the wealthy pay their fair share. Wealth taxes, enhanced corporate taxation, and closing loopholes that allow multinationals to evade taxes are more sustainable alternatives. These measures, coupled with strengthening tax collection and efficiency, could significantly boost revenue without exacerbating inequality.
The proposed VAT hike also highlights a deeper issue: misplaced priorities. For decades, Nigeria has underinvested in the “roads” of its economy—education, healthcare, infrastructure, and social safety nets. These sectors are the foundations of a prosperous and equitable society. Neglecting them while imposing higher taxes on struggling citizens is akin to asking passengers to pay more for a journey on broken roads.
What Nigeria needs is a nuanced, pragmatic approach to taxation—one that balances equity, fairness, and economic efficiency. Differentiated VAT rates can help achieve this. Essential goods and services like basic food items, medicines, and educational materials should be exempted or taxed at lower rates, while luxury goods and non-essential services attract higher rates. Such a system protects the vulnerable while ensuring that the burden of taxation is borne by those who can afford it.
Real reform also requires addressing systemic inefficiencies. Billions of naira are lost annually to tax evasion and corruption within the tax administration system. Plugging these leaks would provide a substantial revenue boost without increasing the tax burden on citizens. Similarly, expanding the tax net to include the vast informal sector, through incentives and support for formalization, could broaden the revenue base.
As consultations on tax reform continue, policymakers must prioritize policies that close inequality gaps rather than widen them. The proposed VAT hike is a detour that takes Nigeria further from this goal. It fails to address the structural issues plaguing the economy, placing the burden squarely on the shoulders of those least able to bear it.
The government must resist the allure of quick fixes. Instead of tinkering with rates in a regressive system, Nigeria must build a progressive tax structure that aligns with the principles of equity and social justice. This is the only way to ensure that the car of the Nigerian economy moves forward, with all passengers sharing the journey’s costs and benefits fairly.
Nigeria deserves better. Let’s fix the roads, repair the engine, and embark on a path that promises sustainable growth and shared prosperity.
