By: Harriet Ijeomah
Over the years, Nigeria has witnessed the crippling effects of excessive taxation on its economy, particularly in the agricultural and food sectors. The recent decision by President Bola Tinubu to implement zero percent import duty and exempt Value-Added Tax (VAT) on basic food items marks a significant shift in policy—one that could bring much-needed relief to millions of Nigerians. However, this move also highlights the broader issue of how over-taxation has stifled economic growth and development in the country, pointing out the urgent need for more thoughtful and balanced taxation policies.
For too long, Nigeria’s agricultural sector has been burdened by high import duties and taxes, making it increasingly difficult for local farmers and food producers to compete with imported goods. According to data from the National Bureau of Statistics, Nigeria’s inflation rate has consistently hovered above 18% in recent years, with food inflation often exceeding 20%. This has been driven in large part by the high cost of importing essential food items such as rice, wheat, and maize, which are subject to hefty tariffs and levies. For instance, before this policy shift, duties on some staple food items like rice were as high as 30%, adding a significant cost burden that was ultimately passed on to consumers.
The economic impact of these taxes has been devastating. High food prices have pushed more Nigerians into poverty, with the World Bank estimating that nearly 4 million Nigerians could fall into extreme poverty in 2024 alone due to the rising cost of living. This is in a country where over 40% of the population already lives below the poverty line. The knock-on effect has been a reduction in household spending on other essential goods and services, further dampening economic activity and growth.
Moreover, the high cost of imported food has also hampered Nigeria’s efforts to achieve food security. Local farmers, unable to compete with cheaper imports, have seen their incomes dwindle, leading to a decline in agricultural productivity. This has created a vicious cycle where the country remains dependent on food imports, which are subject to volatile global prices and exchange rates, further exacerbating food insecurity.
The recent decision to implement zero percent import duty and exempt VAT on basic food items is a step in the right direction. By lowering the cost of essential imports like maize, millet, rice, and wheat, the government is attempting to stabilize food prices and ease the financial burden on Nigerian households. But this policy must be more than a temporary measure. It should serve as a wake-up call for a more comprehensive overhaul of Nigeria’s taxation system.
The argument for reducing or eliminating taxes on essential goods is clear: lower taxes can stimulate economic activity, increase consumer spending, and ultimately lead to higher government revenue through other forms of taxation, such as income and corporate taxes. Studies have shown that reducing VAT on essential goods can lead to a reduction in inflationary pressures, boosting purchasing power and fostering economic growth. According to the International Monetary Fund (IMF), countries with lower tax rates on essential goods tend to experience higher rates of economic growth and development.
Furthermore, a more balanced approach to taxation could also spur investment in local industries. The Ministry of Finance has indicated that the importation of these zero-duty items will be limited to investors with milling capacity and verifiable Backward Integration Programs. This is a positive move that could encourage local production and processing, reducing Nigeria’s dependence on imports in the long term. However, for this to be truly effective, the government must ensure that these policies are consistently implemented and not subject to arbitrary changes that could undermine investor confidence.
In conclusion, while the recent tax exemptions on basic food items are a welcome relief, they must be part of a broader strategy to address the damaging effects of over-taxation on Nigeria’s economy. The government must take a more holistic approach to tax policy, one that prioritizes the welfare of its citizens and the long-term development of key sectors like agriculture. By doing so, Nigeria can build a more resilient and self-sufficient economy, capable of providing for its people and thriving in an increasingly competitive global market.
