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The Economic Impact of VAT rate increase in Nigeria

Upward trend chart

Introduction to VAT

Value Added Tax colloquially known as VAT is a replacement of the sales tax which was earlier promulgated into existence through decree No.7 of 1986. VAT is a consumption tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of the production and distribution chain. It is charged and payable on the supply of all goods and services (manufactured or produced locally and/or imported), other than those specifically exempted (such as pharmaceuticals, educational items, basic commodities, medical and exported services, etc.) or listed as zero-rated (such as non-oil exports) in the first schedule to the VAT Act.The Nigeria VAT collections are segmented into Import which makes up about 19.78% and Non-import makes up about 0.22%. The VAT is further classified into Local, Foreign and Nigeria Customs Service (NCS) VAT.

Increase in VAT in Nigeria

The main VAT rate in Nigeria is 7.5% (raised from 5% on 1st February 2020). An increase in VAT meant more money for State and Local Governments (LGAs) who split the collections using a simple sharing formula – 15% of the VAT for the Federal Government and 85% for States and LGAs. The increase of VAT by 2.5% in 2020 seems to have been a great move by the Government as 2020 experienced a drastic decline in global oil prices due to the COVID-19 pandemic.

The current VAT in Nigeria as of Q2 2021 stands at 512 billion naira which represents a 56.6% year-on-year increase, as shown in the dashboard story below.

Viz author: Mayokun Awe | Profile | Tobi Williams | Profile