Growth in Agro-Allied Sector Tax Revenue
The agro-allied sector has generated a significant amount of Value Added Tax (VAT) over the past three years, with total remittances reaching N18.3 billion. This represents a growth of 119.29% since 2022, highlighting the increasing formalisation and expansion of the agricultural value chain. According to data from the National Bureau of Statistics’ report on Sectoral Contributions to VAT, the tax collection from this sector rose by 15.29%, from N4.25 billion in 2022 to N4.9 billion in 2023, before nearly doubling to N9.15 billion in 2024.
This upward trajectory indicates that the agricultural sector is becoming more integrated into the formal economy and holds substantial potential for driving Nigeria’s economic diversification. An increase in VAT collection typically means higher government revenue and greater agribusiness activity. However, experts caution that without deliberate policy support, this trend may not translate into sustained development or food security.
Impact of New Tax Laws on Agriculture
Stakeholders have raised concerns about the upcoming new tax laws, which are set to take effect in 2026. These reforms aim to streamline taxation but could have significant implications for smallholder farmers, processors, and agro-allied industries. Basic food items remain tax-exempt, while locally produced animal feeds, live cattle, goats, sheep, poultry, and agricultural seeds and seedlings are among taxable supplies charged at zero per cent under the new regulations.
Dr. Muda Yusuf, Director of the Centre for Promotion of Private Enterprise, explained that the VAT collection figures likely stem from company tax and Pay As You Earn (PAYE) taxes from employees in agro-allied industries. He noted that the agri-sector, particularly the agro-allied segment, is one of the most competitive sectors in manufacturing due to its strong backward integration, making it less reliant on imports compared to other manufacturing firms.
Formalising Agricultural Activities
President of the All Farmers Association of Nigeria, Kabir Ibrahim, observed that rising VAT payments reflect growth in agribusiness and government revenue. He emphasized that as VAT charges on agriculture increase, it signals economic growth and provides the government with more resources to execute projects, leading to national prosperity. The new tax laws are expected to formalise more agricultural activities, reducing leakages and expanding the tax net.
Ibrahim highlighted the importance of integrating informal farmers into the tax net to boost VAT inflows and drive the diversification agenda. He stressed that if all leakages are blocked, Nigeria’s economy could achieve greater heights, reducing dependence on oil and giving impetus to the agricultural sector.
Balancing Taxation and Food Security
While the positive revenue trend is encouraging, stakeholders argue that for agriculture to drive sustainable growth, the government must nurture the sector through tax incentives, credit facilitation, and infrastructural support. They believe that taxation should not stifle growth but rather be used as a tool to encourage value addition, productivity, and competitiveness.
Director Yusuf reiterated that agricultural products and inputs have traditionally enjoyed tax exemptions to safeguard food security. He clarified that much of the VAT collected likely comes from agro-allied industries along the value chain. While VAT contributes to government revenue, overburdening the sector would harm food production. He confirmed that the Federal Government maintains a policy of exempting food-related sectors from serious taxation.
Injecting Credit and Rejecting Overtaxation
Agricultural expert Femi Adelayo, CEO of FACCO West Africa, emphasised the need to reduce the tax burden on agribusinesses to stimulate growth. He warned that excessive taxation on inputs and equipment discourages investment and fuels inflation. Adelayo also pointed out the prevalence of informal taxation, such as local levies and transportation charges, which weigh heavily on farmers and processors.
He called for subsidies, storage facilities, mechanisation support, and access to low-interest credit to help the sector thrive. Adelayo argued that boosting exports of value-added products is crucial for Nigeria’s diversification agenda. Structured export agreements, he said, are essential for building Nigeria’s reputation in global markets.
Key Challenges and Recommendations
Stakeholders have flagged several challenges, including rising production costs, high energy tariffs, poor logistics, and currency volatility. Yusuf called for an enabling environment to sustain VAT growth and agriculture’s contribution to the economy. Experts agree that taxation should not stifle growth. Instead, harmonised tax policies and incentives should enable agribusinesses to scale, employ more people, and contribute more significantly to government revenue over time.
As Adelayo put it, “You might need to invest now and reap later. Consider it like you’re planting.”
