The Growth of Agricultural VAT Revenue and its Implications for Nigeria’s Economy
Nigeria’s agricultural sector has demonstrated remarkable growth in Value Added Tax (VAT) remittances over the past three years, reaching N18.3 billion between 2022 and 2024. This represents a substantial 119.29% increase, with collections rising from N4.25 billion in 2022 to N4.9 billion in 2023, and nearly doubling to N9.15 billion in 2024. This surge in VAT revenue signals not only the increasing formalization of the agricultural value chain but also the sector’s significant potential to drive economic diversification. However, experts caution that this positive trend must be supported by deliberate policy interventions to ensure its sustainability and translate into enhanced food security for the nation.
The observed increase in agricultural VAT collections can be attributed to several factors. Firstly, it reflects the expansion of agribusiness activities across the country. As the agricultural sector grows, more businesses engage in value-adding activities along the agricultural value chain, becoming subject to VAT. Secondly, the growing formalization of the agricultural sector brings more businesses under the tax net. As informal agricultural activities transition into more structured and registered entities, their financial transactions become more transparent and traceable, leading to improved tax compliance and higher VAT collections. Notably, basic food items remain exempt from VAT, while certain agricultural inputs and livestock are subject to zero-rated VAT, indicating that the bulk of the VAT revenue likely originates from agro-allied industries further down the value chain. Additionally, corporate income tax and payroll taxes from employees within the agro-allied sector likely contribute to the overall tax revenue attributed to the agricultural sector.
The upcoming implementation of new tax laws in January 2026 is expected to further formalize agricultural activities, potentially leading to increased VAT revenue. However, stakeholders have expressed concerns about the impact of these reforms on smallholder farmers, processors, and agro-allied industries. While the reforms aim to streamline taxation, it is crucial to ensure that they do not inadvertently burden these critical players in the agricultural sector. Experts emphasize the need for careful consideration of the potential effects on small-scale farmers, who constitute a significant portion of Nigeria’s agricultural workforce and contribute significantly to food production. Balancing revenue generation with the need to support and foster the growth of this vital segment of the agricultural sector is paramount.
To further capitalize on the positive momentum in agricultural VAT revenue and unlock the sector’s full potential, experts urge the government to prioritize policies that stimulate investment, improve credit access, and guarantee food security. Support for smallholder farmers, who form the backbone of Nigeria’s agricultural output, is essential. This includes access to credit, improved infrastructure, and policies that encourage value addition in agricultural production. Promoting value addition, as exemplified by the ban on raw shea nut exports and the focus on processing agricultural products before export, is crucial for maximizing the economic benefits derived from agriculture. This approach not only enhances the value of agricultural exports but also creates more jobs and stimulates local economies.
Balancing taxation and food security is a delicate act. While VAT contributes significantly to government revenue, it is essential to avoid overtaxing the agricultural sector, as this could negatively impact food production. The government’s policy of exempting food and food security-related items from VAT demonstrates a commitment to protecting this vital sector. However, continuous assessment and adjustments are necessary to ensure this policy remains effective and aligns with the evolving needs of the agricultural sector. A healthy and productive agricultural sector generates broader economic benefits, including increased corporate tax revenue and overall economic growth.
To create a truly enabling environment for agricultural growth, the government must address macroeconomic bottlenecks such as poor infrastructure, unstable energy supply, and limited access to credit. Reducing the tax burden on agribusinesses, providing incentives for employment, and streamlining various forms of taxation, including informal levies and charges, are crucial steps to unlocking the sector’s potential. Subsidies, storage facilities, mechanization support, and access to low-interest credit are vital for empowering farmers and encouraging investment in the sector. Promoting exports of value-added agricultural products through structured export agreements can further enhance Nigeria’s position in the global market and generate valuable foreign exchange.
Ultimately, taxation should not be a barrier to agricultural growth. Instead, well-designed tax policies and incentives can empower agribusinesses to scale up their operations, create jobs, and contribute more significantly to government revenue. A long-term perspective is needed, recognizing that investments in the agricultural sector today will yield substantial economic benefits in the future. By fostering a thriving agricultural sector, Nigeria can achieve sustainable economic growth, enhanced food security, and a diversified economy that is less reliant on oil revenue.
