In a significant shift aimed at enhancing fiscal federalism, the Presidential Committee on Fiscal Policy and Tax Reforms has proposed a new framework for the distribution of Value Added Tax (VAT) revenues in Nigeria. Under the new proposal, states and local governments are set to receive a substantial increase in their share, receiving 90% of VAT revenues, a stark rise from the current arrangement. The Federal Government’s share would correspondingly decrease from 15% to just 10%.
Taiwo Oyedele, the chairman of the committee, revealed these proposed changes during a stakeholder meeting focused on assessing the impact of various tax reform policies. This session, part of a series of public engagements, was held in Abuja and brought together business owners, industry experts, and other stakeholders.
“The aim is to redistribute VAT more equitably among the tiers of government. By reducing the Federal Government's portion from 15% to 10%, we empower states and local governments, thereby supporting our broader goals of boosting the nation's tax revenue," Oyedele explained.
Currently, VAT—which stands at a rate of 7.5%—is collected by the Federal Inland Revenue Service and disbursed through the Federation Accounts Allocation Committee. The revenue is split with the central government receiving 15%, states 50%, and local governments 35%. This formula has been a topic of debate, with calls for more significant local control over the collected revenues.
In line with these changes, there is also a recommendation to increase the VAT rate from 7.5% to a higher percentage, although the exact figure was not specified. This suggestion aligns with previous advice from Zainab Ahmed, the former Minister of Finance, who had advocated for raising the VAT rate to 10%.
Oyedele emphasized the potential benefits of such an increase: "By adjusting the VAT rate upward, we can potentially double our VAT revenue within two years if these reforms are enacted," he stated. He assured stakeholders that the committee is keen on ensuring that the tax burden remains with the consumer without escalating product prices, promising zero VAT on essential services like food, education, medical services, and accommodation to protect the poor and small businesses.
The tax reform committee’s approach reflects a comprehensive strategy to reevaluate and improve Nigeria’s tax system, aiming to achieve a minimum tax-to-GDP ratio of 18%. This initiative is part of a broader effort by President Bola Tinubu's administration to enhance the nation's revenue profile and business environment by eliminating multiple taxation and streamlining tax collection.
However, Oyedele cautioned against allowing states to manage VAT collections independently, citing potential chaos similar to scenarios observed in other federations like Brazil. He explained, "While the idea of states collecting their VAT might seem appealing, it could lead to administrative and regulatory challenges that could offset the benefits."
These proposed changes are set to undergo further scrutiny and discussion among policymakers, stakeholders, and the public to refine the details and ensure that the new tax framework supports sustainable economic growth and fair revenue distribution across Nigeria.
0 Comments