By Oyetola Muyiwa Atoyebi, SAN


Over the decades, Nigeria’s economy has been largely dependent on revenue generated from the sale of crude oil, making the country’s revenue source, monotonous. This has become increasingly worrisome considering the volatile and highly unstable nature of the crude oil market, making heavy reliance on the proceeds of the sale of crude oil, an unwise fiscal decision. However, there has been noticeable diversification in the revenue-generating sources with the introduction of taxes.

Taxes are levies that are imposed by the government. The manner of collection and the subject it is directed towards determines whether it is direct or indirect. A direct tax is a fixed levy imposed by the government on an individual or a corporate body in proportion to its earnings or profit. Indirect tax on the other hand is a tax on a particular product or service that accrues at every manufacturing and delivery stage till it gets to the end-user or final consumer who consequently bears the levy.


The main reason why an indirect tax is referred to as such is that the party who eventually bears the levy is different from the party that would remit the same to the Federal Inland Revenue Service. In Indirect taxation, the tax is not exactly collected as a tax but as a part of the amount payable for the goods or services. This means that when purchasing an item, a customer cannot decide whether or not he desires to pay indirect tax as it is automatically added to the cost price of the goods and presented as the purchase price[1].

The types of indirect taxes payable in Nigeria include:

  1. Value Added Tax (VAT): this tax is generally referred to as consumption tax. It is the tax payable by a consumer on goods and services purchased in Nigeria. It accrues on the product or service at each stage where value is further added to the product or service. It is the principal indirect tax in Nigeria and it was first introduced in Nigeria in 1993 by the Value Added Tax Decree No 102 of 1993 and became operational in January 1994[2]. The Value Added Tax replaced the Sales Tax that was introduced by the Federal Government in Decree No. 7 of 1986.

A Taxable person includes individuals or bodies that engage in the sale of goods and services to make a profit.  The VAT rate in Nigeria was originally fixed at 5% which was one of the lowest rates available globally by the VAT Decree No 102 of 1993. After many unsuccessful attempts to increase the rate, it was upwardly reviewed to a fixed rate of 7.5% by the Finance Act 2020 which came into force on the 1st of February, 2020[3].

As earlier mentioned, there are goods and services that are described as VAT-able. This includes all consumption goods and services except those expressly described as exempted.

The VAT Decree No 102 of 1993 provided a list of exempted products and the Finance Act 2020 added a few other products to the list. The exempted goods include: Medicinal products (Human and veterinary in nature), agricultural and agro-allied equipment and tools, trade plants and machines, downstream gas processes plants and equipment, learning materials, essential food items including seasoning, animal protein, tubers, nuts and other essential food items[4]. The exempted services include: services by community and microfinance banks and educational events. Businesses with a turnover of less than N25 million are also exempted from paying VAT[5].

The sharing formula is as follows: 15% of the total VAT received for the year goes to the Federal government, 50% to the state and 35% to the local government, accounting for part of the generated revenue[6].

Taxable persons duly registered with the Federal Inland Revenue Service are expected to make payment and file VAT returns not later than the 21st day of the following month after the transaction occurred.

  1. Custom Duties: This is further categorized into import and export duties. The Nigeria Customs Service is saddled with the responsibility of collection of custom duties. When products are imported into Nigeria, import duties are paid to the Nigeria Customs Service and export duties are paid on products exported from Nigeria to other countries.

Depending on the product, custom duties can be a fixed percentage or payable in proportion to the quality or value of the product with rates between 5% -35%. The calculation is usually based on the Cost, Insurance, and Freight valuation method.

  1. Excise duty: this is another form of indirect tax. It is levied on certain manufactured products to discourage the sale and use of such products or services. It was introduced in Nigeria in 1962 with subsequent alterations to the list of products that excise duties can be charged on to serve as a form of deterrent to the prevalent use of certain products.

These products and services are deemed as harmful and excise duty is charged ad valorem (a fixed percentage on the value of the product) or an amount according to the specifications of the product or even a fixed charge to increase the purchase price and discourage patronage. The fifth Schedule to the Customs and Excise Tariff, Etc. (Consolidation) Act provides for excisable goods to include Tobacco, Alcohol, bleaching creams, and gambling, amongst others.

An amendment has been made to this list by The Fiscal Policy Measures and Tariffs Amendments 2022 with an inclusion of a 5% excise duty on telecommunication services. The Finance Act has also amended the Customs and Excise Tariff Act to impose excise duties on imported excisable goods only.


Without a doubt, there are several implications of indirect taxation on the Nigerian economy, some positive, others, negative.

Positive Implication of Indirect Tax on the Nigerian Economy

The Nigerian economy has been largely monotonous with heavy, non-inclusive reliance on crude oil. With the significant drop in the price of crude oil over the years, Nigeria’s economy has taken several hits. One of such was in 2021 when the price of crude oil crashed to as low as $38[7].

Indirect tax has substantially diversified the economy to ensure that Nigeria can slowly but surely shift from total dependence on an oil revenue-based economy. Indirect tax is fast becoming a major source of revenue in the country with Value Added Tax, one of the principal indirect taxes, generating as much as N972.34bn as reported by the National Bureau of Statistics on the 21st February 2018 in its 2017 Sectoral report for Value Added Tax. There is a constant demand for goods and services and this makes indirect tax, a steady source of revenue. The nature of indirect tax that mandates its addition to the market price of goods and services makes it very difficult to evade payment, unlike the tax evasive schemes at the disposal of taxpayers under direct taxation.

In addition, the excise duty tax, a form of indirect tax, is imposed on harmful products and the imposition of this tax helps to discourage the sale and consumption of harmful products such as tobacco and cigarettes as it causes an increase in the purchase price. The imposition of import duties also encourages the domestic production of goods and patronage of locally manufactured goods because this tax makes imported products more expensive.

Negative Impact of Indirect Tax on the Nigerian Economy

It has been largely argued by economic analysts and stakeholders that indirect tax is largely regressive in nature, unlike direct tax. What this means is that in direct tax, you are levied according to how much you make. In indirect tax, however, irrespective of your income or profit, every end user pays the same amount on the product. Considering that income is unequally distributed, the imposition of equal tax comes off as unfair and unreasonable.

Furthermore, the imposition of custom duties discourages local businesses that deal in the import of goods as well as foreign investment in the economy. This is because the taxes on these goods makes it an unfriendly environment for businesses trading in imported and excisable goods.

The civic responsibility that is associated with direct tax that infuses taxpayers with a patriotic sense of contributing to a society they are a part of, is sadly lacking in indirect taxation. This is because consumers of products are taxed indirectly and most are unaware of this fact[8].


Indirect tax is merely one of the alternate revenue-generating channels in Nigeria. Although its contribution of about 15% of the revenue of the country annually is hardly abysmal, this is not sufficient to cover for the deficit created by the crash in the price of crude oil. There is therefore a need for further diversification of the Nigerian economy to provide better funding for infrastructural and developmental projects.


A diversion from the monotonous mode of generating revenue by the government through the introduction of taxes is a vibrant means of improving the economy of the nation. Indirect taxation in particular is an effective means of achieving this as it prevents issues such as tax evasion.

Keywords: Tax, Taxation, Direct Tax, Indirect Tax, Value Added Tax.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN

Mr Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm).

Mr. Atoyebi has expertise in and vast knowledge of Taxation Law Practice and this has seen him advise and represent his vast clientele in a myriad of high-level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of Senior Advocate of Nigeria.

He can be reached at   

CONTRIBUTOR: Tobenna Mogbo

Tobenna is a member of the Dispute Resolution Team at OMAPLEX Law Firm. He also holds commendable legal expertise in Taxation Law Practice

He can be reached at

[1] S Lekan & O Sunday, Taxation: Principles and practice in Nigeria, Lagos (Silicon Publishing Company 2006).

[2]Ukpabi Anulika Laura, Impact of Indirect Taxation on Economic Growth in Nigeria: International Journal of Advanced Engineering Research and Science (IJAERS)< > accessed on 8 April 2023

[3] Section 34 of the Finance Act 2020

[4] Ukpabi Anulika Laura, Impact of Indirect Taxation on Economic Growth in Nigeria: International Journal of Advanced Engineering Research and Science (IJAERS)< > accessed on 8 April 2023

[5] Section 38 of the Finance Act 2020

[6] Akande, ‘Finance Act 2019, 20 Basic Food Items, Sanitary Pad, Others Make List of VAT Exemption List’. < > accessed on 8 April 2023.

[7] K Gbeke, Nkak, P,’ Tax reforms and economic growth of Nigeria’ 23(6) Journal of Business and Management (2021) <> accessed on 8 April 2023

[8] J Adanma, and others, ‘Impact Of Indirect Taxes On Economic Performance Of Nigeria 1994-2017’ (2019) European Journal of Accounting, Finance and Investment (5)(4) <https://>  accessed on 8 April 2023.

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