Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, on Wednesday, issued a statement addressing the Revenue Mobilisation Allocation and Fiscal Commission’s (RMAFC) position on the proposed VAT distribution formula.
Oyedele’s statement provides context and highlights the issues the reforms seek to address.
The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) had earlier opposed the proposed value-added tax (VAT) sharing formula in the tax reform bills, citing constitutional breaches.
In a memorandum signed on Monday by Muhammad Shehu, chairman of RMAFC, the commission highlighted several legal, constitutional, and technical objections to the proposed bills.
The proposed tax bill suggests a VAT revenue-sharing formula of 10 percent to the federal government, 55 percent to the state, and 35 percent to the local governments.
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However, the current VAT revenue-sharing formula shows that the federal government takes 15 percent, states get 50 percent, and 35 percent goes to the local governments.
However, according to Oyedele, VAT was introduced in 1993 to replace the sales tax, and despite being centrally collected, it remains a state tax.
Currently, 85% of VAT revenue is distributed to states, while the federal government retains 15%.
However, Oyedele notes that this sharing formula is under dispute, with Rivers and Lagos states seeking to administer VAT as a state tax.
As Oyedele explains, “VAT was introduced via a decree in 1993 to replace the sales tax which was being administered by states at the time. While it is being centrally collected to ensure better efficiency and manage the intricacies of the multi-layered nature of VAT, there is a recognition that VAT remains a state tax.”
The proposed VAT revenue sharing formula in the tax bills aims to address key issues, including the perceived inequity in the current distribution formula and the derivation model, which favors head office locations, mainly benefiting Lagos and Rivers state.
Oyedele warns that if the Supreme Court case succeeds, states will lose the opportunity to share VAT revenue, and import and international VAT will become the sole revenue of the federal government.
Oyedele notes that the RMAFC’s concerns about the proposed sharing formula are misplaced.
He states, “We note without conceding to the view expressed by the RMAFC regarding the proposed sharing formula. We believe that the focus should be on the ongoing engagements with key stakeholders to reach an acceptable position as a matter of priority.”
Furthermore, Oyedele addresses concerns expressed by the RMAFC, stating that VAT consumption does not need to be determined based on taxpayer residence.
He explains, “VAT consumption needs to be determined based on taxpayer residence. This is not the case with VAT or any consumption tax unlike income tax.”
Oyedele also notes that the horizontal distribution of VAT revenue among states is not based on a formula of 50% derivation, 35% population, and 15% equality, but rather 20% derivation, 50% equality, and 30% population.
In conclusion, Oyedele calls for a constructive and objective approach to finding a workable solution, avoiding further controversies, and working together to move the nation forward.
He states, “This moment calls for a constructive and objective approach focusing on finding a workable solution, avoiding further controversies and working together in order to move our nation forward.”
As the debate on VAT reform continues, it is essential to consider the implications of the proposed changes on the economy and the nation as a whole.
Oyedele’s statement provides valuable insights into the complexities of VAT administration and the need for a collaborative approach to finding a solution.
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