Abdulwahab Isa 
…Oyedele allays states’ fear
The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee Mr Taiwo Oyedele has allayed fears by some states that the introduction of derivation Value Added Tax will lead to a lower revenue for some states.
He said such fear has been taken care of by 5% to be ceded by the federal government to be set aside for equalisation transfer for catering to any shortfall to a state under the new model.
By taking such a step, he said it ensures that no state is worse off in the short term, while significantly enhancing economic activities and revenue for all states in the medium to long term.
Oyedele made the fresh clarification on Monday via his verified X handle in another public engagement aimed at seeking public buy-in for government tax reforms that have received pushback.
His insights on tax reforms came against the backdrop of 19 state governors in the Northern region who proposed its introduction. They urged the president to withdraw the tax reform bill from the National Assembly.
Governors from the Northern region rejected the proposed shift to a derivation-based model for Value Added Tax distribution. They claim that the proposed model would be at the disadvantage of the northern states and other less industrial regions.
Oyedele clarified that the proposed derivation model is contained under S.22(12) of the Nigeria Tax Administration Bill which states that “for the purpose of attribution, any return under this section shall provide details of the derivation of taxable supplies by location.
Providing a context to the controversy, Oyedele said the controversy had arisen from the perception that the proposed formula would lead to lower revenue for some states.
” However, the 5% to be ceded by the FG can be set aside for equalisation transfers to cater for any shortfall to a state under the new model. This ensures that no state is worse off in the short term while significantly enhancing economic activities and revenue for all states in the medium to long term”, he clarified.
He said the reform was imperative to correct the imposition of parallel consumption taxes in some states along with Value Added Tax( VAT),a development he said increases the tax burden on the people, and contributes to multiple taxations.
He addressed ten critical issues trailing tax reform with answers provided for them.
Addressing questions on why is the VAT proposal generating so much controversy. Are we trying to fix what is not broken? He said the current VAT system is fractured with major issues which include,
disputes over VAT administration between some states and the federal government resulting in some landmark judgements and pending court cases.
” This is compounded by the fact that VAT is not stated in the 1999 Constitution thereby creating a lacuna. Our analysis shows that a central collection system is more efficient and benefits all. Once the contentious issues have been resolved, then VAT can be properly included in the constitution.
“The current sharing formula of FG 15%, States 50% and LGs 35% is proposed to become FG 10%, States 55% and LGs 35%.
“The imposition of parallel consumption taxes in some states along with VAT increases the tax burden on the people and contributes to multiple taxation. The reform seeks the discontinuation of all consumption taxes other than VAT”.
On the basis of distribution, he said the current formula for sharing VAT among states is based on 20% derivation, 50% equality and 30% population.
“The tax reform proposes a different model of derivation which will attribute VAT to the place of supply and consumption rather than the current model which attributes VAT to the state where it is remitted thereby favouring states with companies headquarters.
“Further, derivation under the new model will account for 60% of VAT distribution for better equity and to discourage any state from seeking to administer VAT as a state tax, which will not only result in much lower revenue for all tiers of government but will impose a higher burden on businesses”.
He said the main objectives of the reform are to redesign the system to support growth by addressing current challenges such as the multiplicity of taxes, and ambiguous and obsolete provisions, and reduce the tax burden on individuals and businesses while promoting the ease of doing business to facilitate sustainable economic growth and deliver shared prosperity for Nigerians.
The key targets include a single-digit number of taxes, harmonised and efficient revenue administration, an increase in tax to GDP ratio, economic competitiveness, and removal of tax burden on the poor.
