THE chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, said the committee had proposed that value-added tax (VAT) rate be reduced to zero per cent on food, health, education, and the exemption for rent, transportation, and small businesses.

Oyedele said this in a statement shared on his office X handle on Monday, September 9, to clarify the seeming misconception about the commission’s proposal.

According to him, data from the National Bureau of Statistics (NBS) shows that these are the areas where the average household spends almost all their income.

With the proposed reduction of VAT to zero per cent and the exemption for other items where most Nigerians spend their minimal disposable income, Oyedele said the VAT burden on the people would be reduced.

In recent times, there have been frequent reports that the Oyedele-led committee has proposed a VAT rake hike.

On Monday, September 9, the federal government refuted speculations that it had increased the VAT to 10 per cent.

The minister of finance, Wale Edun, said this, stating that as stipulated in the country’s tax laws, VAT remains at 7.5 per cent.

Edun noted that recent media reports and opinion articles have inaccurately portrayed the government as intentionally burdensome to Nigerians, dismissing the hike in VAT and describing it as a misconception.

This followed the concern raised  by a former vice-president, Atiku Abubakar, on Sunday,  September 8 that President Bola Tinubu’s administration has plan to increase VAT to 10 per cent, describing it as an action that reflects a “profound insensitivity” to the plight of the vulnerable Nigerians.

The ICIR had earlier reported the committee points and the context in which its proposal on VAT rate is based.

Explaining this further in his post on Monday, Oyedele maintained that the upward rate adjustment was on non-essential items to partly offset the impact of the reduction in rate and exemption for essential items.

With this, he stressed it would ensure the masses are protected and provide some cushion for states that earn 85 per cent of VAT revenue.

“Businesses will also get full credit for the VAT they pay on their assets and services, thereby lowering their overall costs and moderating inflation,” Oyedele further explained.

Comparing current VAT regime with Oyedele’s committee proposal

At present, many essential items constituting 82 per cent of the total consumption of an average household attract VAT while some are exempt, and other forms of consumption taxes exist in some states in addition to VAT, Oyedele pointed out.

He said businesses currently are unable to recover VAT on their assets and services, thereby increasing their costs, which they pass on to consumers.

He also noted many small businesses are required to charge VAT on their sales and that VAT refunds require extensive tax audits and take a long time to process.

He submitted that the sharing of VAT revenue to and among states is contentious, adding that the export of services and intellectual properties bear VAT, making their export less attractive.

On the proposed VAT regime, the Oyedele-led committee is requesting that there should be a zero per cent VAT on food, education, and healthcare, an exemption on rent and transport, among other items in that regard and an increase in the rate on non-essential items, to partly offset reduction on essential items.

His committee are proposing that the government discontinue other consumption taxes and charge only VAT where applicable.

He further put forward that with it all businesses will be able to recover VAT on their assets and services, thereby lowering their overall costs and reducing inflation.

“Over 97 per cent of SMEs will be exempted from charging VAT on their sales. VAT refunds will be faster without the need for extensive tax audits to help business cash flow.”

With the proposal VAT regime, Oyedele said sharing of VAT revenue to and among states would be more equitable, adding that the export of services and intellectual properties will attract zero per cent VAT to facilitate export growth.