On May 29, 2025, President Bola Tinubu marked his second year in office with a significant announcement during his anniversary speech. He revealed that rents, public transportation, and renewable energy will now be free from Value Added Tax (VAT) in Nigeria. This is part of a broader plan to make life more affordable and boost the economy. The government also plans to set VAT at 0% for essential items like food, education, and healthcare. While this sounds promising, it’s important to examine how these changes might impact the general public, especially with concerns about inflation, insecurity, and food production.
What the VAT Exemptions Mean
The new VAT exemptions are intended to ease the financial pressure on Nigerian households, particularly those with lower incomes. For example, removing VAT on rent could reduce monthly expenses for many families, freeing up funds for other needs like groceries or school fees. Similarly, cheaper public transportation could lower commuting costs, benefiting workers and students alike.
Additionally, eliminating VAT on renewable energy, such as solar power, could encourage its use, potentially reducing electricity bills and promoting a cleaner environment. The government also aims to support small businesses by cutting multiple taxes, which could lead to more job opportunities in the future. President Tinubu says these changes build on past successes. Since he took office in 2023, Nigeria’s tax-to-GDP ratio has risen from 10% to 13.5% by 2024, thanks to improved tax collection. Earlier moves, like removing VAT on cooking gas in 2023, have been praised for making life easier and promoting cleaner energy. The Federal Inland Revenue Service even collected over N15 trillion in 2024, showing the tax system is becoming more effective. These steps suggest the government is working toward a fairer economy, which could benefit the public in the long term.
The Bigger Picture: Economic Challenges
However, some analysts argue that these VAT exemptions might not significantly address the country’s biggest problem—inflation. Inflation occurs when prices for essentials like food and fuel keep rising, making it harder for families to afford basic needs. Even with these tax cuts, prices might not drop because other factors, such as the high cost of importing goods, remain unchanged. The 2025 budget assumes oil will sell for $58 per barrel, but if prices exceed this, the government might struggle to meet its goals, keeping inflation a challenge.
Tinubu has noted that inflation has decreased from 34% in mid-2024 to 28% in early 2025 due to better food production and policies. Yet, for many, 28% is still a burden, and the relief may not be felt widely. Another critical issue is insecurity, which affects farmers and food production. Bandits and conflicts in rural areas make it dangerous for farmers to work their land, resulting in less food being grown. This scarcity drives up food prices, impacting the general public. The President’s speech did not outline new plans to tackle this “albatross” (a heavy burden), which raises concerns. Without addressing insecurity, food supply issues will persist, and inflation could remain high despite the VAT exemptions.
How This Affects the General Public
So, how do these palliatives—temporary relief measures—affect the public? On one hand, saving money on rent and transport could provide some financial relief to households, potentially increasing disposable income—the money left after taxes. If small businesses grow, more jobs might be created, benefiting the economy. However, if inflation doesn’t drop and food prices continue to rise due to insecurity, those savings may not make a meaningful difference. Families might still struggle to afford nutritious meals or essential supplies, limiting the overall impact of these reforms.
Looking Ahead
President Tinubu’s plan includes supporting industries like manufacturing, technology, and agriculture with clear incentives, which could foster job creation and economic growth. He aims to end unfair tax breaks for big companies and focus on helping all citizens. This is a step toward a stronger Nigeria, and there is hope it will succeed. However, the effectiveness of these reforms depends on addressing insecurity and its impact on food production. If farmers cannot work safely, food prices won’t fall, and the VAT exemptions may not deliver the intended relief.
In conclusion, these reforms demonstrate the government’s commitment to improving life for the general public. The VAT cuts could reduce costs and support small businesses, laying a good foundation. Nevertheless, without tackling insecurity and its effect on food production, the relief may be limited. As Nigeria progresses through the middle of Tinubu’s first term, addressing these challenges will be crucial to ensuring a more stable and hopeful future for all.
