The Presidential Committee on Fiscal Policy and Tax Reforms has recommended a significant overhaul of the value-added tax (VAT) revenue sharing structure, proposing a redistribution that would allocate 90 percent to states and local governments, while reducing the federal government’s share from 15 to 10 percent.
Chairman of the Committee, Taiwo Oyedele, unveiled these proposals during a stakeholder engagement session in Abuja, where business leaders and industry stakeholders convened to evaluate key proposals in the National Tax Policy.
Oyedele emphasized the imperative of these reforms to bolster the nation’s tax revenue.
“In our proposal, the Federal Government’s portion would be reduced from 15 percent to 10 percent, with states sharing 90 percent with local governments,” stated Oyedele during the meeting on Monday.
These deliberations represent a crucial phase in engaging stakeholders to ensure the successful execution of tax reform initiatives aimed at achieving a minimum tax-to-GDP ratio of 18 percent, as outlined by the current administration.
The fiscal policy and tax reforms committee, inaugurated by President Bola Tinubu last August, seeks to streamline Nigeria’s revenue profile and business environment by streamlining multiple taxes.
VAT, a 7.5 percent consumption tax administered by the Federal Inland Revenue Service (FIRS), generates revenue when goods and services are purchased, with the final consumer bearing the tax burden.
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Under the existing formula, VAT revenue is disbursed to the three tiers of government through the Federation Accounts Allocation Committee.
Despite significant VAT revenues under former President Muhammadu Buhari’s administration, the call for rate increases has persisted.
Former Minister of Finance, Zainab Ahmed, advocated an increment from 7.5 percent to 10 percent.
Looking ahead, the government plans to enhance VAT revenue by expanding tax coverage, particularly in sectors such as telecommunications, banking, construction, and aviation.
Oyedele expressed confidence that these reforms could potentially double VAT revenue within two years if implemented.
Addressing concerns about potential price hikes, Oyedele assured stakeholders that the committee had collaborated closely with businesses to prevent such escalations.
He proposed a nuanced approach that exempts basic necessities like food, education, medical services, and accommodation from VAT, while ensuring minimal impact on businesses.
Moreover, Oyedele cautioned against granting individual states sole control over VAT collections, citing potential chaos. He advocated a revised sharing formula, highlighting the historical evolution of VAT collection and emphasizing the need for equitable distribution.
