President Muhammadu Buhari on Tuesday announced new items that would be exempted from the value-added tax.
The items include pharmaceuticals, educational items and basic food commodities.
The government had presented an executive bill to the National Assembly seeking to raise VAT by 50 per cent to 7.5 per cent.
Presenting the 2020 budget to the joint session of the National Assembly in Abuja, the president said the 2020 Appropriation Bill is based on the new VAT rate.
However, the president said the list of items exempted from the VAT would be expanded to cover items covered under Section 46 of the Finance Bill, 2019.
The new exempted items include brown and white bread; cereals, including maize, rice, wheat, millet, barley and sorghum; fish of all kinds; flour and starch meals; fruits, nuts, pulses and vegetables of various kinds.
Others are roots, such as yam, cocoyam, sweet and Irish potatoes; meat and poultry products, including eggs; milk; salt and herbs of various kinds and natural water and table water.
The president said the government is also proposing an increase of the threshold for VAT registration to N25 million in turnover per annum.
The decision to raise the threshold, he said, is to help the revenue authorities focus their compliance efforts on larger businesses, to bring relief for the micro, small and medium-sized businesses.
The president said additional revenues to be raised from the increased VAT would be used to fund health, education and infrastructure programmes.
“As the States and Local Governments are allocated 85% of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well, the President said.