The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has stated that the proposed VAT revenue sharing formula in the tax bills along with the other VAT reform proposals are meant to address key issues that are existential to the VAT regime as currently operated.
Oyedele said this in his response to the Revenue Mobilisation Allocation and Fiscal Commission’s (RMAFC) concerns regarding the VAT revenue-sharing formula outlined in the tax reform bills currently before the National Assembly.
The Revenue Mobilization Allocation and Fiscal Commission (RMAFC) had opposed the proposed changes to the Value Added Tax (VAT) sharing formula in the proposed Tax Reform Bills currently under consideration in the National Assembly.
In a memorandum presented to the legislature, the RMAFC emphasised that it is the sole body constitutionally authorised to determine revenue-sharing formulas, including VAT.
It labeled any attempt to deviate from this responsibility as not only inappropriate but also potentially unconstitutional.
Oyedele’s response was contained in a statement he shared via his X handle on Wednesday, December 11.
The statement partly reads: “The proposed VAT revenue sharing formula in the tax bills along with the other VAT reform proposals are meant to address key issues which are existential to the VAT regime as currently operated. There is a pending case by Rivers and Lagos states seeking to administer VAT as a state tax in view of the perceived inequity in the current distribution formula. In addition to the perceived unfairness of the distribution formula, the current derivation model is skewed in favour of head office locations, which mainly benefit Lagos and Rivers State.
“If the case, which is pending at the Supreme Court succeeds:
“States will lose the opportunity to share VAT revenue among themselves as any revenue generated by each state will be retained 100%, i.e. 100% derivation model.
“Import and international VAT will become the sole revenue of the federal government along with FCT VAT, which altogether accounts for more than 50% of the current VAT revenue compared to the 15% being shared by the federal government that is proposed to reduce to 10% under the tax bills in favour of states.
“Moving away from the central collection of VAT will not only lead to significant revenue loss of over 50% for all the states, they will also face challenges in collecting VAT as evident from the old sales tax regime administered by states and the consumption tax being collected currently by some states.
“This will make states and local governments vulnerable and further increase subnational fiscal risks with the attendant economic and social consequences.
“There will also be challenges to commerce and interstate trade in addition to the cascading effect on inflation.”
