Tax Exemptions Drive 59% Drop in Healthcare VAT Revenue

By Àkànní Olúwaségún Michael

Nigeria’s healthcare sector recorded a sharp decline in Value Added Tax (VAT) contributions in the first quarter of 2026, following the implementation of sweeping tax reforms that removed VAT from a wide range of medical goods and services.

Data released by the National Bureau of Statistics (NBS) showed that VAT collections from Human Health and Social Work Activities fell by approximately 59 per cent year-on-year during the quarter, making it one of the weakest-performing sectors in terms of VAT generation.

The decline occurred despite strong growth in overall VAT collections as the NBS report shows that total VAT revenue rose to N2.42 trillion in the first quarter of 2026, representing a 17.06 per cent increase from N2.07 trillion recorded in the corresponding period of 2025. Quarter-on-quarter, collections increased by 9.98 per cent from N2.20 trillion in the fourth quarter of 2025.

The contrasting performance reflects the impact of Nigeria’s new tax regime, which took effect on January 1, 2026, after President Bola Tinubu signed four landmark tax reform laws on June 26, 2025.

The legislation includes the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service Act and Joint Revenue Board Act.

Among the major changes introduced by the reforms was the removal of VAT on a broad range of healthcare-related goods and services. Medical services, pharmaceutical products, medical equipment and other essential healthcare supplies were either exempted from VAT or placed on a zero-rated list under the new framework.

The reforms were developed by the Presidential Committee on Fiscal Policy and Tax Reforms led by Taiwo Oyedele, who argued that exempting essential items such as food, medicine and healthcare would lower costs for households and improve access to basic services.

Ahead of the implementation, Oyedele had stated that the expanded exemptions would inevitably reduce VAT collections because consumers would be paying less tax on essential goods and services.

As a result, the sharp decline in healthcare-related VAT collections does not necessarily indicate weaker demand for healthcare services. Rather, it reflects a significant change in how healthcare transactions are treated under the tax system.