Proposed VAT Reforms Offer 0% tax On Intellectual Property And Export Of Services
The Presidential Fiscal Policy and Tax Reforms Committee has proposed the introduction of a 0% VAT on intellectual property and services as part of a broader initiative to stimulate Nigeria’s export sector.
This reform is one of seven key changes in the proposed VAT regime designed to reshape the country’s tax system.
The Chairman of the Committee, Taiwo Oyedele, shared these details via his official X (formerly Twitter) account on Monday, inviting Nigerians to offer their thoughts on the proposals.
Oyedele’s post explained that the proposed VAT regime, which introduces a 0% VAT rate on the export of services and intellectual property to boost global competitiveness, contrasts with the current regime that imposes VAT on these exports, making them more expensive and less attractive internationally.
“Export of services and intellectual properties will attract 0% VAT to facilitate export growth,” a portion of the statement on the proposed VAT regime read.
Oyedele’s post highlighted additional key proposals in the proposed VAT regime, including Zero (0%) VAT on essential items such as food, education, and healthcare, along with exemptions for rent and transport, while raising VAT rates on non-essential items to offset these reductions. In contrast, under the current VAT regime, many essential goods, which account for 82% of household consumption, are subject to VAT, with only some exemptions.
Another major proposal in the proposed VAT reforms is the discontinuation of other consumption taxes, leaving only VAT where applicable. In comparison, the current system allows some states to impose additional consumption taxes alongside VAT.
More insight
Providing further insight into the remaining proposals of the proposed VAT regime, Oyedele explained that over 97% of small and medium-sized enterprises (SMEs) would be exempt from charging VAT.
This change is aimed at simplifying business operations and reducing the administrative burden on smaller enterprises, enabling them to focus on growth and expansion. In contrast, the current VAT regime requires many small businesses to charge VAT, adding complexity and increasing compliance costs, which can hinder their ability to scale.
Oyedele also emphasized that the proposed VAT reforms aim to streamline the VAT refund process by eliminating the need for lengthy tax audits.
Faster VAT refunds will enhance cash flow for businesses, allowing them to reinvest more efficiently in their operations. Under the current system, VAT refunds are often delayed due to extensive audits, which creates cash flow challenges and slows down business activities, ultimately stifling growth.
In addition, Oyedele highlighted that the proposed VAT regime seeks to ensure a more equitable distribution of VAT revenue among states.
This addresses the ongoing disputes and dissatisfaction in the current regime, where the sharing of VAT revenue has been a contentious issue, leading to regional imbalances and tensions.
By creating a fairer allocation system, the proposed reforms aim to promote fiscal equity and reduce conflicts over revenue distribution.
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