Nigeria’s 36 states received a total of N265.55 billiion as share of Value Added Tax (VAT) allocation from the Federation Account Allocation Committee (FAAC) in the first three months of this year, findings by New Telegraph show. According to data on FAAC disbursements for Q1’22 recently published by the National Bureau of Statistics (NBS), the states received the sums of N82.82 billion, N89.03 billion and N93.70 billion as their share of VAT allocations in March, February and January respectively. VAT was introduced in Nigeria in 1993 and it replaced Sales Tax in the states.
The formula for the distribution, when it was first introduced, was that 50 per cent of the total collection went to the Federal Government, 35 per cent to the states and 15 per cent to the local government areas. However, beginning from January 1999, the formula was adjusted with the Federal Government getting 15 per cent, States 50 per cent and LGAs and area councils of the FCT 35 per cent.
The share of the states and that of the local governments is shared amongst them using the factors of “equality 50 per cent, population 30 per cent and derivation 20 per cent.” New Telegraph’s analysis of FAAC disbursements for January to March 2022, as published by NBS, shows that Lagos State, the country’s commercial capital, got the highest VAT state allocation during the review period. For instance, the state received the sums of N10.90 billion, N11.15 billion and N13.04 billion as its share of VAT allocation from FAAC in March, February and January 2022, respectively. This means that Lagos got a total of N35.09 billion as VAT revenue during the three-month period.
It was followed by Rivers State, which received a total of N13.46 billion as its share of VAT allocation from FAAC in the first three months of 2022. Rivers State was followed by Kano State, which got a total of N10.97 billion as its share of VAT allocation in the three-month period. Further analysis of the FAAC disbursements indicates that Nassarawa State received the lowest VAT revenue allocation during the review period with a total of N5.02 billion, followed by Ebonyi and Bayelsa states with N5.35 billion and N5.41 billion respectively. According to data obtained from the Federal Inland Revenue Service (FIRS), the agency collected a total of N2.07 trillion and N1.53 trllion in VAT revenue in 2021 and 2020 respectively. In a bid to generate more rev-enue, the Federal Government had, in February 2020, increased VAT rate from five to 7.5 per cent.
The International Monetary Fund (IMF), in February last year, said in a report that Nigeria would need to increase its VAT rate to at least 10 per cent by 2022 and 15 per cent by 2025, from 7.5 per cent, to boost revenues after the country recovered from a recession. The Fund said at the time that the Nigerian economy was at a critical juncture and government needed act fast on reforms that would help overcome the effects of the recession, adding that the 7.5 per cent VAT rate, which government announced in 2020, was still among the lowest in the world and less than charged by other major oil-exporting nations. New Telegraph reports that some states, led by Rivers State, last year, got court judgements that gave them the power to collect VAT revenue.
The FIRS, however, challenged the judgement, leading to Rivers State taking the battle to the Supreme Court. Rivers State Governor, Nyesom Wike, contended that it was unfair for Rivers State, which, for instance, generated about N15 billion as VAT in June 2021, to receive only N4.7 billion as VAT allocation for the period, whereas Kano State, which generated N2.8 billion, also got N2.8 billion as allocation.
Analysts note that 87 per cent of the total VAT revenue comes from only five states, while the other 32 states account for only 13 per cent of the funds. Specifically, findings show that Lagos State accounts for about 55 per cent of Nigeria’s VAT, followed by Abuja with 20 per cent, Rivers with six per cent, Kano with five per cent while Kaduna accounts for one per cent of the fund.