President Tinubu in set announcing the policy change of zero VAT on rent during his second anniversary celebration in Lagos,…… May 29, 2025.
By Wahab Shittu, SAN, Ph.D.
ON May 29, 2025, President Bola Tinubu announced a zero percent Value Added Tax (VAT) rate on essential goods and services, including rent, during his second anniversary address observed in Lagos. This policy aims to ease the financial burden on households and stimulate economic growth.
Key highlights of the VAT exemption include:
. Rent: Fully exempt from VAT to reduce household expenses.
. Food: Zero VAT rate to make essential items more affordable.
. Education: Exempt from VAT to promote accessibility and affordability.
. Healthcare: Zero VAT rate to alleviate the financial burden on citizens.
. Public Transportation: Fully exempt from VAT to reduce transportation costs.
Goals of the Tax Reform:
. Increase disposable income for low-income households.
. Support small businesses and promote economic growth.
. Encourage investment and job creation.
. Simplify and streamline the tax system.
. Promote fairness and accountability in taxation.
To maximize the benefits of President Tinubu’s zero VAT on rent in Nigeria, let us consider the following:
. Increased Affordability: The removal of VAT on rent can make housing more affordable for Nigerians, particularly low- and middle-income earners.
. Boost to Real Estate: The policy can stimulate the real estate sector, encouraging investment and development of new properties.
. Economic Relief: The reduction in rental costs can provide economic relief to tenants, allowing them to allocate more resources to other essential expenses.
To fully maximize these benefits, the government can consider additional measures, such as:
. Monitoring Rental Prices: Ensuring that landlords pass on the VAT savings to tenants.
. Regulating the Real Estate Sector: Encouraging transparency and accountability in rental transactions.
. Providing Affordable Housing Options: Increasing the availability of affordable housing units to cater to the growing demand.
The next aspect of implementing this zero VAT on tenants’ rent is drawing up regulatory framework to monitor its progress.
To effectively implement the zero VAT on rent policy in Nigeria, a robust regulatory framework is essential. Here’s a possible outline:
Key Components:
1. Clear Definition of Rental Income: Define what constitutes rental income subject to the zero VAT rate.
2. Eligibility Criteria: Specify the types of properties (residential, commercial) and tenants eligible for the zero VAT rate.
3. VAT Exemption Mechanism: Outline the process for landlords to claim VAT exemption on rental income.
4. Tenant Protection: Ensure tenants benefit from the VAT exemption through reduced rental costs.
5. Compliance and Monitoring: Establish a system to monitor compliance and prevent VAT evasion.
6. Dispute Resolution: Provide a mechanism for resolving disputes between landlords, tenants, and tax authorities.
Regulatory Requirements:
1. Amendment to VAT Act: Amend the VAT Act to reflect the zero VAT rate on rental income.
2. Guidelines for Landlords: Issue guidelines for landlords on VAT exemption claims and compliance.
3. Tenant Awareness: Educate tenants on their rights and benefits under the policy.
4. Tax Authority Oversight: Ensure tax authorities effectively monitor and enforce compliance.
Benefits:
1. Increased Affordability: Reduced rental costs for tenants.
2. Economic Stimulus: Encourages investment in the real estate sector.
3. Improved Compliance: Clear guidelines and regulations promote tax compliance.
Challenges:
1. Implementation: Ensuring effective implementation and compliance.
2. Abuse Prevention: Preventing abuse of the VAT exemption system.
3. Revenue Impact: Managing the potential revenue loss for the government.
Let us now look at some African countries that practice low or zero VAT on rent and other essential services in their various states.
Here are some of them with notable VAT policies.
Countries with Low VAT rates are:
. Oman: 5% standard VAT rate, with specific exemptions and zero ratings.
. Mauritius: 15% standard VAT rate.
Countries with VAT Exemptions include:
. Paraguay: 10% VAT rate, with 5% rate for sale and rent of immovables, some medicines, and agricultural products.
. Countries without VAT:
. Libya: No VAT or similar tax.
. Myanmar: No VAT, but a 5% commercial tax
It’s worth noting that some countries have specific VAT rates for certain goods or services. For example:
– South Africa: 15% standard VAT rate.
– Ghana: 15% standard VAT rate, with additional levies on taxable supplies.
None of the searched countries explicitly mention a “zero VAT on rent” policy. However, some countries have reduced VAT rates or exemptions for specific sectors, like real estate or housing.
In conclusion, by establishing a well-structured regulatory framework, Nigeria can effectively implement the zero VAT on rent policy, promoting affordability and economic growth and by these measures, the government can ensure that the zero VAT on rent policy achieves its intended objectives for the benefits of Nigerians.
Dr. Shittu is a Lagos-based Senior Advocate of Nigeria and a consummate social commentator.
