The Chairman of the Presidential Tax Reform Committee, Taiwo Oyedele, has raised the alarm that businesses will suffer while the economy would retrogress if State governments are allowed to collect value-added tax.
Speaking on a live television programme at the weekend, Oyedele recalled that a similar approach was attempted in the 1980s with sales tax, but that the sub-national governments failed to generate significant revenue through it. By 1999, we were writing the constitution because we now have the 4th Republic. But what we did was to just replicate the 1979 Constitution, Oyedele said.
In 1979, there was no VAT. So, there was no VAT in the 1979 Constitution. 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 wasnt stated in the 1999 Constitution, lawyers will state to you that its a residual matter.
Because its a residual matter; it means it belongs to the subnational. Thats 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%; based on equality – 50%; and based on population – 30%; we are proposing that correct derivation, and share 60% based on derivation; 20% based on population and 20% based on equality, he explained.
Oyedele also said another more attractive proposal by the committee is to allow the federal government to reduce its VAT share, and give room for States to have more.
Oyedele further said the new tax reform Bills under consideration at the National Assembly will halt revenue collection by federal agencies such as the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigeria Customs Service, (NCS).
The committee chairman said the bills aim to stop approximately 60 federal agencies from collecting taxes, allowing them to focus on their primary mandates. He added that the new measures will simplify tax collection across the country and enhance the operational capacity of the agencies.
Recall that President Bola Tinubu had on October 3, asked the National Assembly to consider and pass four tax reform Bills, which include: the Nigeria Tax Bill, the Tax Administration Bill, and the Joint Revenue Board Establishment Bill.
According to the Bill, VAT would be increased to 10 per cent by 2025 and reduce Company Income Tax (CIT) to 27.5%, from an average of 30% over the same period.
Under the proposed Bill, Personal Income Tax (PIT) will be raised to 25% for high earners from next year, from about 20 percent.
