IMF Advises Nigerian Government to Increase VAT to 15%

By Adedapo Adesanya

As part of efforts to improve Nigeria’s ailing economy, the International Monetary Fund (IMF) has thrown its weight behind the need for the country to carry out tax administration reforms.

On the back of this, it called on the Nigerian government to double Value Added Tax (VAT) to 15 per cent in the next five years from the current 7.5 per cent.

This is part of the recommendations offered by the staff of the Bretton-Wood institution at the conclusion of its 2022 Article IV Mission in Nigeria.

Amid dwindling revenues from the nation’s oil proceeds, the country has taken to borrowing, but IMF notes that this can sooner be solved by adjusting tax rates to levels comparable to the average in the Economic Community of West African States (ECOWAS) as compliance improves.

“This includes further increasing the VAT rate to 15 per cent by 2027 in steps while streamlining numerous VAT exemptions based on systemic reviews, increasing excise rates on alcoholic and tobacco products while broadening the base, and rationalizing tax incentives by streamlining tax expenditures based on comprehensive periodic reviews,” the recommendation said.

Recall that the federal government 2020 commenced the implementation of the 7.5 per cent VAT as directed in the Finance Act 2019, much to the dismay of Nigerians. Before then, VAT was 5.0 per cent.

The mission also welcomed the steady implementation of the tax automation system (TaxPro Max), which was launched by the Federal Inland Revenue Service (FIRS) in June 2021 to enable seamless registration, filling, payment of taxes, and automatic credit of withholding tax as well as other credits to the taxpayer’s accounts, among others.

The IMF also recommended stepping up efforts to further expand coverage under a well-designed roadmap and strengthen taxpayer segmentation centring on the Large Taxpayer Offices (LTOs).

Setting a medium-term target, the lender added, “the authorities should develop a compliance improvement programme and comprehensive customs modernization programme.”

To help states also revenue, the IMF tasked the Nigerian government to improve the effectiveness of the State Internal Revenue Service’s administration of the Pay-As-You-Earn (PAYE) system.

To eliminate red-tapism, it called for strengthening inter-agency coordination and data sharing.