The Chairman of the Presidential Committee on Tax Policy and Fiscal Reforms, Taiwo Oyedele, has flawed the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) on its position on the criteria to use in allocating Value Added Tax (VAT) revenue to the three tiers of government in the country.
The Commission, in a Memorandum issued by its Chairman, Mohammed Bello Shehu, had warned the National Assembly while considering the VAT Bill now before it to refrain from subjecting VAT allocation to arbitrary determination.
He maintained that any decision relating to VAT distribution to the tiers of government must be aligned with the commission’s constitutional mandate, following the framework stipulated in Nigeria’s constitution.
In the Memorandum submitted to the National Assembly, the RMAFC Chairman called for a VAT allocation formula to be finalized by the commission to ensure fairness and equity in the allocation of VAT collections to the tiers of government.
Reacting to the proposal of the RMAFC to the National Assembly on Wednesday, Oyedele charged the Commission to come up with recommendations that would help in finding a workable solution to the raging controversies on the draft VAT Bill rather than escalating the controversies.
The committee chairman pointed out that VAT was introduced by a decree in 1993 to replace the sales tax, which was then being administered by states as a legislative option to improve the efficiency of the collection, among other benefits.
The seasoned fiscal expert maintained that though VAT is being centrally collected to ensure improved efficiency and effective handling of the intricacies of the multi-layered nature of VAT, it is constitutionally recognized as state tax.
Oyedele explained: “We note without conceding to the view expressed by the RMAFC regarding the proposed sharing formula. We believe that the focus should be on the ongoing engagements with key stakeholders to reach an acceptable position as a matter of priority.
“From the Commission’s statements, it is clear that more understanding of the issue is required to enable more constructive contributions to the debate towards an effective resolution. Some of the concerns expressed which are either not applicable or only require some clarifications include:
“That VAT consumption needs to be determined based on taxpayer residence. This is not the case with VAT or any consumption tax, unlike income tax.
“The illustration regarding the purchase of an asset in Lagos for use in Kano does not pose any difficulties as VAT has an inbuilt mechanism for input and output VAT where only the VAT related to incremental value added in a jurisdiction will be attributed to such location with production treated as intermediate consumption at each stage of the production process before the final consumption.
“There is no need for any technology to track the location of consumption, every eligible business will simply be required to indicate the location of sales in its VAT returns as stipulated under section 22(12) of the Nigeria Tax Administration Bill.
“It is not necessary to tag VAT collections to end-user locations from sale to consumption, neither is it practical to do so. After all, we may not be able to tag services or creative work that are digitally delivered as intangible goods”, he added.
The committee chairman explained that the current horizontal distribution of VAT revenue among states was not based on a formula of 50% derivation, 35% population and 15% equality as claimed by the RMAFC but rather on 20% derivation, 50% equality and 30% population.
He further clarified: “We are aware of various efforts by the RMAFC over the past decade including the nationwide consultation exercise on the review of the federation revenue sharing formula 3 to 4 years ago.
“Not only was VAT excluded from this exercise despite the apparent inequity in the distribution formula, but the outcome of the revenue-sharing consultation is yet to be concluded many years later.
“VAT administration is already under dispute, therefore seeking a political solution to avoid the risk of the tax being adjudged as a tax to be administered by states requires urgent action.
“We look forward to the RMAFC joining the ongoing effort including consultation with key stakeholders to arrive at a generally acceptable outcome. This moment calls for a constructive and objective approach focusing on finding a workable solution, avoiding further controversies and working together to move our nation forward”, Oyedele added.
