The proposed Value Added Tax (VAT) reform is set to reduce manufacturing costs by approximately 3.3%, according to Taiwo Oyedele, Chairman of the Presidential Tax Reform Committee. Oyedele disclosed this in a post titled Impact of Proposed VAT Reform on Cost Budget, where he addressed concerns raised by the Organised Private Sector of Nigeria (OPSN).
During a recent meeting hosted by the Manufacturers Association of Nigeria (MAN), Oyedele clarified misconceptions about the reform’s implications.
“A participant who works for a manufacturing company asked to know when the reforms are likely to take effect and whether to include higher costs due to the proposed VAT rate increase in the company’s 2025 budget,” he said. “This question reflects the general perception of the VAT reforms, whereas the overall impact is actually a cost reduction.”
Oyedele presented a detailed analysis of a typical manufacturer’s budget under the proposed reform, highlighting areas where costs would decrease:
Raw materials: No change, as VAT is already claimable under current and proposed laws.
Manufacturing overhead: VAT on absorbed manufacturing assets will be claimable.
Training and development: Applicable VAT will qualify as input VAT.
Salaries and wages: No impact, as these are outside VAT’s scope.
Professional fees, communications, marketing, and distribution: VAT will become claimable.
Finance costs: Minimal impact, as most items are not VATable.
Plant and equipment, and right-of-use assets: VAT will be claimable.
Summarizing the overall impact, Oyedele explained, “The total cost borne by the company reduces from 1000 to 967, reflecting a cost decline of 3.3% despite the rate increase.”
He noted that the analysis compares the current Company Income Tax (CIT) deductions or capital allowances for non-claimable VAT with the input claims allowed under the proposed VAT reform. The reform, according to Oyedele, presents a net positive outcome for manufacturers despite concerns over a rate increase.
