Nigeria Tax Reform Update: FG to Refund ₦3.4 Trillion in Input VAT Credits to Businesses

Nigeria’s ongoing tax reforms are set to unlock an estimated ₦3.4 trillion in input Value Added Tax credits for businesses, according to Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms.

Oyedele disclosed this during a media engagement held in Lagos, explaining that the new tax framework will significantly improve cash flow for eligible businesses by allowing them to recover VAT paid on goods and services used in their operations.

Input VAT credit enables companies to claim refunds on VAT incurred on assets, overhead costs, and inventory. Oyedele noted that from January, the reformed tax laws will sustain and expand these claims, describing the process as money being returned directly to business accounts.

Based on 2024 VAT collections, Oyedele said the value of reclaimable input VAT amounts to about ₦3.4 trillion, representing funds that will flow back into the private sector to support growth, investment, and job creation.

A major highlight of the reform is the restructuring of VAT treatment on essential goods. Oyedele explained that under the existing system, items such as bread are VAT-exempt, meaning producers do not charge VAT at the point of sale. However, this exemption prevents manufacturers from reclaiming VAT paid on production inputs.

As a result, producers absorb VAT costs on raw materials, equipment, fuel, logistics, communication services, and other operational expenses. These hidden costs are often transferred to consumers through higher prices.

Under the new tax regime, essential goods including bread will move from VAT-exempt to zero-rated status. While VAT will still be charged at zero percent, producers will now be eligible to recover the full VAT paid on their inputs. This change is expected to reduce production costs and help stabilize consumer prices.

Oyedele further stated that food, education, and healthcare have all been designated as zero-rated sectors under the reforms. Educational institutions, from nursery schools to universities, will charge zero percent VAT while reclaiming VAT on items such as laptops, computers, boards, and other teaching resources. This policy shift is aimed at reducing the overall cost of education for Nigerian households.

Not all essential services will fall under the zero-rating structure. Transportation and rent will remain VAT-exempt due to administrative complexities associated with VAT collection in those sectors. Nonetheless, Oyedele emphasized that food, housing, transport, healthcare, and education account for the bulk of household spending in Nigeria, and none of these should be considered luxury expenses.

According to him, it is counterproductive for a country to impose tax burdens on basic necessities required for survival, stressing that the reforms are designed to promote fairness, economic efficiency, and long-term sustainability.

The tax reform package is expected to reshape Nigeria’s VAT system, improve business confidence, enhance compliance, and reduce the indirect tax pressure faced by consumers, while supporting broader economic growth.