Nigerians jubilate as Govt. removes VAT on diesel, cooking gas

The Federal Government has introduced tax exemptions on key energy products and infrastructure as well as fiscal incentives for the upstream and downstream oil and gas sector.

Mohammed Manga, Director, Information and Public Relations in Federal Ministry of Finance in a statement on Wednesday said the Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun unveiled two major fiscal incentives aimed at revitalizing Nigeria’s oil and gas sector.

According to him, “The VAT Modification Order 2024 introduces exemptions on a range of key energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.

These measures are designed to lower the cost of living, bolster energy security, and accelerate Nigeria’s transition to cleaner energy sources.

The notice of tax incentives for deep offshore oil and gas production provides new tax reliefs for deep offshore projects.

This initiative is aimed at positioning Nigeria’s deep offshore basin as a premier destination for global oil and gas investments.

These reforms are part of a broader series of investment-driven policy initiatives championed by His Excellency, President Bola Ahmed Tinubu, in line with Policy Directives 40-42.

They reflect the administration’s strong commitment to fostering sustainable growth in the energy sector and enhancing Nigeria’s global competitiveness in oil and gas production.

What is VAT?

Value-Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production and distribution.

Implemented in over 160 countries, VAT aims to be a neutral tax, without distorting business decisions.

Businesses register for VAT, charge output VAT on sales, pay input VAT on purchases, and claim back excess input VAT. VAT rates vary globally, with standard, reduced, and zero rates applied to different goods and services.

For instance, the UK has a 20% standard rate and 5% reduced rate, while some EU countries have rates ranging from 15% to 27%.

The benefits of VAT include a broad tax base, encouragement of economic growth, simplified tax compliance, and reduced tax evasion.

However, challenges arise from complex administration, tax burden on low-income households, and potential distortions from exemptions and exceptions.

In Nigeria, for example, VAT has a significant impact on businesses, increasing costs for consumers and affecting profitability, particularly for small businesses.

Despite these challenges, VAT remains an essential revenue source for governments worldwide.

Effective VAT implementation requires careful consideration of rates, exemptions, and administrative processes to minimize economic distortions and ensure fairness for businesses and consumers alike.

How VAT affects businesses in Nigeria?

Value Added Tax significantly impacts businesses in Nigeria, particularly small ones.

The increased cost for consumers can lead to lower sales and revenue, affecting profitability, especially in the fast-moving consumer goods sector.

Some businesses are exempt from VAT, including those with a turnover of N25 million or less.

Additionally, certain goods and services are exempt from it, such as medical and pharmaceutical products, basic food items, books and educational materials, baby products, locally produced fertilizer, agricultural and veterinary medicine, farming machinery, and farming transportation equipment.

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