The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele, has cautioned against ceding the collection of Value Added Tax (VAT) to state governments in view of the negative implications for businesses and the nation’s economic growth.
Oyedele, who gave the warning last Friday during an interview on Channels Television’s ‘Hard Copy’ programme, recalled that a similar fiscal policy measure was attempted in the 1980s with sale tax, but the sub-national governments failed to generate significant revenue through it.
This is even as he noted that by 1999, when the Constitution was being written to guide political leaders in the 4th Republic, what was done then was just replicate the provisions of the 1979 Constitution, which made no provision for VAT.
He clarified: “However, by 1999, we had implemented VAT for about five years. And it was becoming our top revenue tax. How on earth did we forget to put it in the 1999 Constitution? “Because it wasn’t stated in the 1999 Constitution, lawyers will state to you that it’s a residual matter.
“Because it’s a residual matter means it belongs to the subnational. That’s why Rivers State and Lagos State have been to court and won. If we get a judgment from the Supreme Court today, it will tell you that VAT should be collected and administered by the states. That will be chaotic.
“States will collect less, businesses will suffer, the economy will retrogress. On balance, the new reform is meant to treat everybody equitably. Try to get us out of the impression that when you start doing VAT at state level, you make so much money, which is not the case.
“In fact, today, the VAT on imports and international services is actually more than the VAT we collect in Nigeria, within our jurisdiction.
“And that amount that is collected from international services and import VAT is not attributed to any state. It goes into the pool and is shared.
“So, today we shared VAT between and among states based on derivation, 20 per cent; based on equality, 50 per cent; and based on population, 30 per cent we are proposing that correct derivation and share, 60 per cent based on derivation, 20 per cent based on population and 20 per cent based on equality”, Oyedele added.
He maintained that another more attractive proposal by the committee was to allow the Federal Government reduce its VAT share for improved allocations to the sub-national governments.
Specifically, Oyedele said that the committee “asked the Federal Government, can you please cede percent of your share to the state instead of taking 15 percent, why don’t you take 10 percent, now we have 5 percent that can give us a buffer that we can use to do fiscal equalisation and actually writing the law to guarantee every state that as a result of our reform, you will not collect less than you would have collected under the old formula.
“I thought that should be good enough. It’s actually just saying to you as a state that your risk is zero, but the upside is significant.
“Your VAT revenue can double in less than two years if they allow this reform to go through, because it would also motivate states to take interest in the economic activities within their jurisdiction”, the tax expert added.
In addition, he maintained that the new tax reform bills now before the National Assembly had the potential of disallowing federal agencies such as the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Customs Service (NCS) from collecting revenues.
According to him, the bills aim to stop about 60 the federal agencies from collecting taxes, and allowing them to focus on their statutory mandates.
