Nigeria's Value Added Tax at 30: YESTERDAY, TODAY AND TOMORROW

This year made it thirty years since Nigeria began administering the Value Added Tax (VAT). Thirty years in, the VAT has been a constant source of challenge to Nigeria’s federal fiscal structure and has earned the reputation for being Nigeria’s most controversial tax. Notwithstanding, the VAT has continued to evolve over the past three decades and we daresay it may have reached its watershed moment. A plethora of reasons account for this state of affairs. First, despite contributing significantly to the nation’s fiscus, questions about increasing the VAT rate and partnering with market trader associations to bring informal sector traders into the tax net have arisen amidst the general concerns about Nigeria’s tax-to-GDP ratio being one of the lowest in the world. Second, equity considerations about the allocation of a fair share of VAT revenue to the states where a large percentage of the VAT revenues are generated have also resurfaced in recent times. Third, the suitability of the VAT and indirect taxes to ensure the optimal taxation of the digital economy is being considered by countries, scholars, and policymakers against the backdrop of the global tax reform efforts of the Organisation for Economic Co-operation and Development (OECD) and the United Nations (UN). Fourth, the emergence of continent-wide trade multilateralism in Africa—through the African Continental Free Trade Agreement (AfCFTA)—has raised concerns about the possibility of VAT harmonisation in Africa and the integration of regional VAT frameworks like the ECOWAS VAT Directive into a possible harmonised continental VAT framework (to ease VAT compliance and protect indirect tax revenues in the single African economy). All of these problems and concerns with the VAT regime have taken center stage in policy discussions about the VAT at a time when the government of President Bola Ahmed Tinubu has established the Presidential Fiscal Policy and Tax Reforms Committee to undertake a comprehensive review of Nigeria’s tax laws and policies. The Committee has identified some of these problems and appears to be working towards resolving some (if not all of them). Therefore, in light of the significance of these problems and the current administration’s resolve to fix the tax system; this is as good a time as any to expect the emergence of a modern, equitable, and world-class VAT system that delivers economic growth and development for the Nigerian people. In this study, we reflect on the development of Nigeria’s VAT, monitor and assess the current legislative and policy framework for the administration of the VAT, and make policy projections for the optimal administration of the VAT in Nigeria.