… Says proposal to tag VAT collections to end-user locations not practicable
…mocks RMAFC over new revenue allocation formula years after
By Dickson Pat
Chairman of the Presidential Committee on Tax Policy and Fiscal Reforms, Taiwo Oyedele, has faulted the proposal made by the Revenue Mobilization, Allocation and Fiscal Commission regarding the determination and allocation of Value Added Tax Revenue to the three tiers of government.
The Commission had cautioned the National Assembly and other stakeholders, urging them to refrain from subjecting Value Added Tax ,VAT, allocation to arbitrary determination.
The Commission stated that any decisions regarding VAT distribution must be aligned with its constitutional mandate, following the framework stipulated in Nigeria’s constitution.
In its Memorandum submitted to the National Assembly, the RMAFC called for a VAT allocation formula to be finalized by the commission, ensuring a fair and equitable approach for all tiers of government.
The warning comes in light of recent legislative proposals that could potentially undermine the commission’s role in determining how VAT revenue is shared.
VAT revenue is shared among the three tiers of government with 15% for the Federal Government, 50% for the States, and 35% for Local Governments.
Disputes arose regarding the collection and administration of VAT, particularly between the Federal Government and some States, such as Rivers and Lagos, which advocated for States to administer VAT within their jurisdictions.
These recent controversies and judicial interventions by Rivers and Lagos States have reignited debates over whether the Value Added Tax formula should follow the derivation principle or remain a centrally administered consumption tax.
These disputes, rooted in disagreements between federal and state governments, have sparked broader discussions on fiscal federalism, equity, and constitutional governance in Nigeria.
But reacting to the proposal of RMAFC on Wednesday, Oyedele asked the Commission to focus on finding a workable solution rather than causing more controversies.
He said VAT was introduced via a decree in 1993 to replace the sales tax which was being administered by states at the time.
According to him, while it is being centrally collected to ensure better efficiency and manage the intricacies of the multi-layered nature of VAT, there is a recognition that VAT remains a state tax.
He said, “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”.
Oyedele said the horizontal distribution of VAT revenue among states is not based on a formula of 50% derivation, 35% population and 15% equality as stated by the Commission but rather 20% derivation, 50% equality and 30% population.
“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.
