This Is What VAT in Nigeria’s Tax Reform Means for Average Nigerians and Small Businesses

As of January 1, 2026, the new tax reform laws will take effect, and Nigerians may experience some financial relief. Although the tax reform has generated both positive and negative opinions online, the Value Added Tax (VAT) provisions promise some changes that will bring about a positive shift in the financial situation of the average Nigerian.

Many Nigerians may not be very aware of what VAT really means. They only see VAT deductions on receipts after purchase. But when it comes to everyday life in Nigeria, one of the most important topics for consumers should be how VAT is handled. This includes understanding how it is applied, which goods and services will now be exempt or zero-rated, what this really means for the average person, and how it affects their daily routines. 

It is crucial to have an understanding of these details as they can significantly impact our daily expenses and purchasing decisions. In this article, we break down the reliefs and exemptions, item by item, with relatable examples.

VAT is a consumption tax placed on goods and services at every stage of production and distribution, from raw materials to the final sale. The final consumer ultimately bears the tax, but it is remitted to the government by businesses on their behalf. In Nigeria, the standard VAT rate remains 7.5% under the current reforms.

However, there is a change in which goods and services this applies to, and which goods or services become exempt from VAT with no charge or zero-rated, VAT charged at 0%. In this case, you pay no VAT, but the supplier can claim input VAT as a deduction. 

For you and me as consumers, this means when we buy certain items or use certain services, we either will not pay VAT at all or will pay 0% VAT. That can reduce the final price we pay, or at least avoid an extra tax burden.

Zero-rated VAT refers to a Value Added Tax rate of 0% applied to specific goods and services. This means that if you sell goods that are zero-rated for VAT, you are not permitted to charge VAT on those sales. 

However, you can still recover the VAT you paid on the items you bought to produce the goods. This not only benefits the consumer but also allows producers to seek tax relief from the authorities, which can be ploughed back into their business.

For the average Nigerian, zero-rated VAT means that certain essential goods and services are sold without the added cost of VAT. This will help lower the final price that consumers pay for these items, making them more affordable.

Tax-exempt means that certain incomes, individuals, businesses, or goods and services do not have to pay taxes by law. They are exempted. This is designed to help low-income earners, support small businesses, and make essential goods easily accessible and affordable. For the average Nigerian, this means that some incomes and essential goods will be exempt from taxation, which can help reduce the overall cost of living.

This is a list of the major relief items and their implications for everyday Nigerians. 

If you purchase staple foods like rice, beans, bread, and others, they become zero-rated for VAT. This means instead of paying the regular VAT component, which at 7.5% would add a few extra naira to the actual price, you pay none.

For example, if you buy a food item for ₦1,075 that previously included 7.5% VAT, which is approximately ₦75, going forward, you would pay ₦1,000 with no VAT applied. This is very impactful because food accounts for a large share of household spending, so the tax relief reduces the cost of purchasing it.

Rent also becomes exempt from VAT under the new reform.. Therefore, if you pay rent, you will no longer be required to pay VAT, and you will also not see a VAT line on your rental invoice.

For example, if your monthly rent is ₦100,000 and is typically charged VAT of 7.5%, it amounts to ₦ 107,500. This will end by the start of 2026, as you will then pay ₦100,000 with no VAT component. That means you get to keep ₦7,500. This is great relief for tenants in the country.

This covers tuition, educational materials (such as books and stationery), and other educational services. These will be zero-rated. So when you pay school fees or buy textbooks, you won’t incur VAT.

For instance, if your school fees were ₦200,000 and a VAT of 7.5% previously included at ₦ 215,000, you would now pay just ₦200,000 from January 2026. Parents and students will benefit to some extent.

Medical services become exempt or zero-rated, depending on the nature, under this law. That means doctors’ consultations and hospital treatment may not be subject to VAT.

This is very important in Nigeria, where healthcare costs are often high and removing VAT makes care marginally more affordable. Imagine going to the hospital for a ₦50,000 treatment and not paying VAT on top of that.

Some medicines and pharmaceutical supplies will be zero-rated. So, if you buy a medication like Paracetamol for ₦200 under the previous VAT regime, a 7.5% tax of ₦15 would have been added, making the total ₦215. However, under the new law, you pay just ₦200 with no VAT. 

If you run a small business and your turnover is below what the reform defines as the small company threshold, you may be exempt from paying VAT. This reduces the compliance burden and can result in lower prices for their customers. 

For many everyday Nigerians, the real advantage lies in smaller businesses being able to reduce costs and potentially face fewer hidden tax charges. This can make a big difference in how these businesses operate and thrive in the community.

Certain energy-related items, such as solar power equipment and fuel, will be subject to VAT suspension or exemption. This will help households reduce energy cost burdens.

These items will be zero-rated or exempt from tax. This relief has two key effects. It will reduce the cost of farming, benefiting farmers and indirectly lowering food costs for consumers as farm input costs decrease.

When equipment like tractors or harvesters is purchased or leased for agricultural use, VAT relief is applicable. This helps mechanisation and productivity in farming, which again benefits the food chain and consumers indirectly.

These essential items for persons with disability are exempt or zero-rated. This means that a wheelchair priced at, let’s say, ₦150,000, will have no VAT. This is a direct cost-saving for persons with disabilities and helps with inclusion.

VAT will not be applied to shared public passenger road transport services. When you commute, part of your fare is no longer subject to VAT, and over time, this reduces your commuting costs.

This is a future-forward relief. Electric vehicles and their components are VAT-exempt. For Nigerians planning to purchase electric vehicles, this is good news. If an EV is priced at ₦10 million and previously VAT was applied, the VAT-exempt status removes the burden of having to pay extra VAT.

Donor-funded or humanitarian goods are exempt. This ensures NGOs and aid agencies can buy supplies without VAT, reducing the cost of humanitarian programmes and ultimately benefiting more communities.

Certain items like baby formula, diapers, and baby clothing may be zero-rated. For example, if diapers cost ₦10,750 with previous VAT included, you now pay ₦10,000 only. It may look small, but it is a helpful relief for many families.

Menstrual hygiene products also become exempt or zero-rated. If you buy a pack for ₦2,150, the VAT of ₦150 will no longer be applied, and the price becomes ₦ 2,000. 

Sales or leases of land and residential buildings are exempt from VAT. If you buy a plot for ₦10 million and previously VAT was applied, you get to save the VAT component. This makes homes and property acquisition a bit affordable.

Why These Changes Matter to You

For many Nigerians, these VAT reforms automatically translate to affordable daily costs. With essential goods such as food, medicine, rent, education, and public transport now exempt or zero-rated, many households will experience some financial relief. While the price difference in these items might seem small, the savings add up across a month or even a year.

VAT reliefs are also designed to empower small businesses. Exempting small companies with a turnover below ₦100 million from VAT obligation allows them to focus on growth. Farmers and agribusiness owners also benefit from tax-free access to fertilisers, seedlings, feeds, and agricultural equipment. These changes aim to promote productivity and sustainability, particularly in the food and energy sectors, where many Nigerians continue to struggle with rising costs.

Overall, the reform may not solve all economic challenges, but it reduces the everyday burdens of Nigerians and shows that the government is trying to put citizens first in the ongoing tax conversation.

Important Things to Note

• Even though a lot of things are exempt or zero-rated, not everything is. Some goods and services will still be subject to VAT at a rate of 7.5%.

• Suppliers and retailers may not immediately pass on this. In some cases, prices may not drop by the full VAT amount, so it's best to ask or check your receipts.

• For zero-rated goods, businesses must account for VAT when they file their returns. Therefore, the cost they will incur depends partly on their efficiency.

• For property and land, specific conditions, lease duration, value, and other factors may have particular rules.
  

• The law takes effect on 1 January 2026, so until then, the old rules still apply.