World Bank Urges VAT Hike for Non-Oil Revenue Boost

In a recent development, the World Bank has put forth a proposal urging the Nigerian federal government to consider elevating the Value Added Tax (VAT) rate as a strategic move to augment non-oil revenue flowing into the government’s coffers. This recommendation was disclosed in the World Bank’s Bi-annual Nigeria Development Update titled “Turning the Corner: From reform and renewed hopes, to results,” which was officially published today.

The report emphasizes the importance of raising the current VAT rate of 7.5% as a significant step toward creating more fiscal space and subsequently increasing non-oil revenue. However, the World Bank underscored the need for any such increase to incorporate provisions for input tax credits. Additionally, the report suggests the removal of exemptions on petrol products as one of the measures that could be implemented to enhance non-oil revenues.

The World Bank’s recommendations extend beyond VAT adjustments, advocating for the utilization of data for tax auditing purposes. Furthermore, the report proposes the introduction of a simplified turnover tax specifically designed for Small and Medium Enterprises (SMEs) at the state level, replacing the existing system of multiple levies and fees.

President Bola Tinubu’s Reforms and Potential Impact on Inflation

The report also delves into the potential impact of the reforms spearheaded by President Bola Tinubu, highlighting that if sustained, these reforms could contribute to a reduction in inflation to 19.6% by 2025. As of October 2023, Nigeria’s current inflation rate stands at 27.33%. President Tinubu, in his budget presentation speech, has set a target of 21.4% for inflation in 2024.

Since his inauguration in May, President Tinubu has initiated two significant reforms—firstly, the unification of the foreign exchange market and secondly, the removal of the costly subsidy on petrol. The World Bank recognizes these reforms as pivotal, indicating that if sustained over the long term, they could lead to various positive outcomes.

Potential Benefits of Sustaining Tinubu’s Reforms

The report outlines several potential benefits of sustaining President Tinubu’s reforms, projecting an increase in GDP growth to 3.7% by 2025. Furthermore, the reforms could contribute to a reduction in the fiscal deficit ratio to GDP from the current 5.1% to 3.7% in 2025. Additionally, the report anticipates a decline in the public debt service as a percentage of revenue, dropping from 102% in 2022 to 51% by 2025.

In conclusion, the World Bank’s recommendations and insights underscore the importance of strategic fiscal measures in boosting non-oil revenue for Nigeria’s economic development. President Tinubu’s ongoing reforms are acknowledged as potential catalysts for positive economic indicators, providing a pathway for sustainable growth and financial stability. Infostride News will continue to monitor and report on these developments as they unfold.