New Zero VAT Policy On Pharmaceuticals and Medical Devices

The Nigerian government has officially commenced the implementation of zero Value Added Tax (Zero VAT) on pharmaceuticals and medical devices, in a move designed to reduce healthcare costs and boost local manufacturing.

The Zero VAT initiative, part of President Bola Tinubu’s reform agenda, is expected to make essential health products more affordable for millions of Nigerians, while also stimulating growth in the country’s pharmaceutical sector.

The Federal Ministry of Health and Social Welfare, in a statement on Tuesday, highlighted that this measure will bring much-needed relief to citizens who depend on critical medicines and medical consumables.

The tax relief comes at a time when the nation’s healthcare system is under pressure, and the government is keen to ensure broader access to affordable health products.

In the official statement released by Alaba Balogun, Head of Information and Public Relations for the Ministry of Health, the government has successfully completed the gazetting of the Executive Order’s Harmonized Implementation Framework.

This framework clears the way for government agencies such as the Federal Inland Revenue Service (FIRS) and Nigeria Customs Service to officially begin the zero VAT policy on pharmaceuticals and medical devices.

The Ministry of Health expressed optimism about the impact of this tax exemption, which will likely lead to reduced prices for medicines and medical equipment. “With the implementation of this Executive Order, we anticipate a notable reduction in the prices of essential pharmaceutical products and medical consumables,” the ministry said in the statement.

One of the core objectives of the zero VAT initiative is to support local pharmaceutical manufacturers. By removing the burden of VAT and excise duties, the government is creating a more favorable environment for local companies to compete and thrive.

This aligns with the ministry’s four-point agenda, which aims to unlock the potential of Nigeria’s healthcare value chain. The third pillar of this agenda focuses on creating conditions that support local manufacturing to foster a healthier, more self-reliant nation.

“By creating an environment that supports local manufacturers, we are fostering a healthier, more self-reliant nation, and ensuring that quality healthcare becomes more accessible and affordable for all,” the ministry said.

In addition to lowering prices, the move is expected to encourage investment in Nigeria’s pharmaceutical and medical device sectors, which have long been hampered by high production costs and reliance on imports.

This development marks a significant milestone in the government’s commitment to reforming the healthcare sector. With the removal of VAT and excise duties, Nigerians can expect more affordable access to vital medicines such as insulin, antibiotics, and vaccines, as well as essential medical devices like syringes, surgical instruments, and diagnostic equipment.

The zero VAT policy also underscores the government’s commitment to making healthcare services more equitable and reducing the financial burden on patients. In a country where out-of-pocket expenses dominate healthcare spending, this policy could be a game-changer for low- and middle income households.

In a parallel development, Nigeria’s federal government has also introduced a Value Added Tax (VAT) Modification Order for 2024, expanding tax exemptions to encourage renewable energy adoption and streamline tax regulations in the petroleum sector.

This includes tax breaks for renewable energy investments such as Compressed Natural Gas (CNG), Liquefied Petroleum Gas (LPG) conversion kits, electric vehicle (EV) equipment, and Biogas technology.

The VAT exemption on diesel, which was previously suspended between October 2023 and March 2024, is now set to be retroactive, effective from October 1, 2023. This retroactive exemption has raised questions within the oil and gas industry, particularly regarding VAT remitted during the suspension period.

Tax experts have called for urgent clarification from the Federal Inland Revenue Service (FIRS) to resolve ambiguities surrounding these changes and ensure smooth implementation.

Kreston Pedabo, a leading accounting firm, has cautioned that gaps in the newly introduced 2024 VAT Modification Order could create challenges for taxpayers in the energy sector. The firm noted that the retroactive exemption on diesel VAT could lead to confusion, especially for companies operating within the oil and gas industry.

The firm’s tax experts, Olubunmi Kuteyi and Oluwasanmi Ogunsanwo, have urged FIRS to offer clarification on how VAT paid during the suspension will be handled.

While the government’s efforts to promote cleaner energy and reduce dependency on fossil fuels are commendable, the retroactive aspect of the new VAT Order could prove problematic for oil and gas firms. Kreston Pedabo highlighted the need for FIRS to hold stakeholder engagement forums to clarify ambiguities and prevent any disruptions to the sector.

The firm emphasized that unresolved issues around the VAT exemptions could create significant challenges for businesses, especially in terms of compliance and financial planning.

Moreover, the firm praised the government’s focus on renewable energy but stressed the importance of seamless implementation to avoid confusion. FIRS has been called upon to address concerns promptly to ensure that businesses can transition smoothly into the new tax regime.

Both the zero VAT on pharmaceuticals and the new VAT exemptions for renewable energy are part of a broader government strategy to reform key sectors of the economy. However, the successful implementation of these measures will depend on clear communication and consistent enforcement by relevant agencies.

For the healthcare sector, this means ensuring that manufacturers, importers, and healthcare providers fully understand the benefits of the zero VAT policy and how to apply it.

The Ministry of Health has already distributed gazetted copies of the Harmonized Implementation Framework to the relevant government agencies for immediate action, and further guidelines for stakeholders are expected soon.