The Impact of Increased VAT on Low-Income Households in Nigeria, by Kehinde Emmanuel Oladele

It is no longer a surprise that Nigeria has been going through some major economic changes lately, driven by government policies aimed at boosting revenue to tackle fiscal issues. One of the biggest concerns has been the rumor of a possible increase in Value Added Tax (VAT) from 7.5% to 10%, though this was later debunked by the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun. However, even if the increase had been real and perhaps justified from a revenue standpoint, the harsh reality is that the impact on low-income households would be too serious to overlook. With that in mind, this opinion piece will shed light on how VAT increase would burden Nigeria’s most vulnerable citizens by offering a perspective that hits close to home for many.

Undeniably, taxation is a crucial tool for any government aiming to fund public services, infrastructure, and social welfare programs, and it is protected by the constitution. However, it is important to recognize that not all taxes affect people equally. VAT, being a consumption tax, is especially regressive, meaning it hits low-income households the hardest. In a country like Nigeria, where over 40% of the population struggles below the poverty line, raising VAT rates essentially adds more weight to those who are already carrying the heaviest burden (the poor masses of Nigeria), who can least afford it.

To truly grasp the weight of this issue, let’s take a moment to imagine the daily struggles of a low-income family in Lagos, Kano, or Enugu. Their already limited income is stretched thin, covering basic needs like food, school fees, rent, and healthcare. Now, with an increase in VAT, the cost of everyday essentials items like bread, rice, cooking oil, and even public transportation will inevitably go up. While wealthier households might be able to handle these price hikes without much trouble, low-income families would be forced into impossible decisions: cutting back on what little they can afford, or falling deeper into debt just to survive. This is the harsh reality they would face.

Meanwhile, when policymakers discuss VAT increases, they often frame the conversation in terms of economic growth and fiscal responsibility. Yet, behind every percentage point increase are real people whose lives are altered by higher costs. Take, for instance, the informal workers who make up a significant portion of Nigeria’s workforce. Market traders, artisans, and domestic workers, who typically earn meager wages, are forced to allocate a larger share of their already constrained income to meet their basic needs. But one cannot overstate the psychological toll this takes. The stress of not knowing whether there will be enough money for the next meal or whether a child will have to skip school due to unpaid fees weighs heavily on parents. Unfortunately, these human struggles rarely find their way into economic reports, but they are the everyday realities of millions of Nigerians.

In furtherance, another worrying outcome of increasing VAT is the widening gap between the rich and the poor. Low-income households, struggling to meet their basic needs, have little to no disposable income for investment in education, skills training, or small businesses. On the other hand, wealthier families continue to enjoy access to private schools, healthcare, and investments that help them weather economic storms. Over time, this imbalance exacerbates inequality, trapping the poor in a vicious cycle of poverty, while the rich continue to accumulate wealth. Noteworthy is the fact that the increased VAT could also undermine efforts to lift more Nigerians into the middle class. It creates barriers to social mobility, making it harder for the working poor to escape poverty through education and entrepreneurship, which are key avenues for upward mobility in developing economies like Nigeria’s.

While this writer understands that governments rely on revenue to operate, particularly in a country like Nigeria, which grapples with numerous challenges. But it’s worth asking: is VAT truly the most effective approach? Are there more progressive alternatives that could better support those in need while still meeting the government’s financial requirements?

In addressing these important questions, this writer proposes that a fairer tax system should prioritize wealthier individuals and corporations. For example, increasing income taxes on high-net-worth individuals or implementing luxury taxes on non-essential goods would ensure that the burden of taxation is more fairly distributed. Another approach could involve strengthening the efficiency of tax collection systems, ensuring that the wealthy who often evade taxes are brought into the fold. Moreover, targeted subsidies or social safety nets could be introduced to cushion the impact of VAT increases on low-income households. This could include food vouchers, transportation subsidies, or direct cash transfers to the poorest households. It is believed that while such measures may seem expensive upfront, they would go a long way in ensuring that the most vulnerable Nigerians are not left behind in the government’s quest for fiscal sustainability.

In conclusion, while increasing VAT might seem like a quick solution to Nigeria’s revenue challenges, we cannot ignore its impact on the nation’s most vulnerable populations. Agreeably, Low-income households are not just numbers; they represent families, individuals, and communities striving for survival and a better future. Therefore, policymakers need to embrace a more human-centered approach to taxation one that acknowledges the disproportionate burden on the poor and aims to offer fairer, more sustainable solutions. On the whole, by prioritizing the above in our economic decisions, Nigeria will pave the way toward a future where growth is inclusive and prosperity is equally shared by all Nigerians.

About the Author

Kehinde Emmanuel Oladele is a dynamic Law student at Ahmadu Bello University, distinguished by his passion for legal research and writing. His academic pursuits are focused on the intricate domains of Taxation and intellectual Property. He has garnered acclaim through numerous publications addressing pertinent contemporary socio-legal issues. His commitment to scholarly exploration and insightful analysis underscores his dedication to advancing legal discourse.