The Federal Government of Nigeria is deliberating the introduction of excise duties across various sectors, including telecoms, lottery, and gambling, alongside a proposed increase in the Value Added Tax (VAT) rate. While plans to introduce excise duties on telecoms and gambling have encountered delays, the VAT rate hike is expected to be addressed next year.
The International Monetary Fund (IMF) Staff report on Nigeria has shed light on these potential fiscal measures, along with other initiatives aimed at bolstering revenues and reducing the fiscal deficit in the foreseeable future.
The report outlines the government’s ambition to escalate the VAT rate from its current 7.5% to 10% by 2025, with further increments to approximately 15% by 2026. The proposed VAT rate elevation would be accompanied by provisions for input credits to services and assets, a reduction in Corporate Income Tax (CIT), and an upsurge in excise duties on tobacco and alcohol.
In a statement, the report indicated, “Excises on telecommunications, lotteries, and gambling are under consideration but have been delayed. The authorities’ planned reforms in 2025 include raising the VAT rate—while introducing input credits for services and assets—increased excises on tobacco and alcohol, and rationalization of tax incentives accompanied by a reduction of the corporate income tax (CIT) rate to enhance competitiveness.”
Additionally, the report disclosed the government’s intention to streamline revenue collection by Ministries, Departments, and Agencies (MDAs), with the Federal Inland Revenue Service (FIRS) poised to assume this responsibility.
The IMF has recommended that these fiscal strategies be finalized and implemented concurrently with the 2025 budget.
Background and Context
During his tenure, President Bola Tinubu established a committee on fiscal policy and tax reforms to revamp the nation’s tax laws, aiming to optimize revenue collection and elevate the tax-to-GDP rate to 18%. Presently, Nigeria’s tax-to-GDP rate stands at approximately 10.8%.
Although proposals to augment the VAT rate have been on the agenda in recent years, the Federal Government has faced challenges in garnering the political will to enact such measures, mindful of public sentiment. An elevation in the VAT rate could potentially exacerbate the inflation rate nationwide, which soared to 33.2% in March.
Moreover, the prospective introduction of excise duties on the telecoms sector may trigger ripple effects on the cost of telecoms services, which have remained stagnant for an extended period. Industry operators have already advocated for tariff adjustments in light of prevailing conditions in the foreign exchange market and ongoing inflation rates.
Currently, the federal government is exploring diverse avenues to mitigate the fiscal deficit, projected to reach 18 trillion according to the 2024 budget.
Credit: Nairametrics
