VAT Decentralization Could Cause 50% Revenue Loss for States, Warns Oyedele
Taiwo Oyedele, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has responded to concerns raised by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) regarding the VAT revenue-sharing formula outlined in the ongoing tax reform bills.
Oyedele emphasized that decentralizing the collection of Value Added Tax (VAT) would result in a significant revenue loss of over 50% for all states in Nigeria.
He further explained that while VAT was introduced in 1993 to replace sales tax administered by states, it has always been fundamentally a state tax. However, it has been collected centrally for efficiency purposes, and decentralizing it could lead to challenges, as states have previously struggled with the administration of the old sales tax regime.
Oyedele also addressed the current legal battle between Rivers and Lagos states and the federal government over VAT collection rights, calling for constructive dialogue to resolve the dispute. He pointed out that VAT is not specifically mentioned in the 1999 Constitution, which makes it a residual matter under the jurisdiction of the states.
This has created complications in the administration and sharing of VAT revenues, as it has not been included in past nationwide consultations on revenue-sharing formulas led by RMAFC. Oyedele urged the commission to engage in ongoing discussions to find a practical solution to the challenges surrounding VAT distribution.
According to Oyedele, the current VAT revenue-sharing arrangement allocates 85% of the collected funds to states, with the federal government retaining 15%, despite generating a substantial portion of VAT through imports and collections in the Federal Capital Territory (FCT). He explained that VAT revenue is held in a special pool account separate from other federation revenues and is distributed without the involvement of the RMAFC, similar to stamp duties, which are allocated based on 100% derivation to states. He emphasized that the reform bills aim to address the inequities in the VAT distribution process.
Oyedele warned of severe consequences if the Supreme Court rules in favor of Rivers and Lagos states, granting them control over VAT collection. He highlighted that the tax reform bills are intended to resolve longstanding issues and ensure an equitable VAT distribution system that would promote inclusive growth for Nigeria. Oyedele called for continued engagement among stakeholders to ensure that the reform process yields a fair and effective solution.
