FG plans further VAT increase, new sharing formula
The presidential committee on fiscal policy and tax reforms says there is a need to increase the value-added tax (VAT) rate.
Speaking at the policy exposure and impact assessment session organised by the committee, the committee chairman, Taiwo Oyedele, also disclosed that the VAT revenue-sharing formula would be reviewed.
Oyedele added that the committee has proposed reviewing state and local governments’ share of VAT revenue to 90 percent from current 85 percent.
According to section 40 of the VAT Act, the federal government gets 15 percent of the tax revenue, states share 50 percent, and local governments share the balance of 35 percent.
The implication of the proposed new sharing structure, according to him, is that the committee is recommending reducing the federal government’s share from 15 percent to 10 percent.
“We are proposing that the federal government’s portion should be reduced from 15 percent to 10 percent. States’ portion will be increased but they would share 90 percent with local governments,” he said.
He explained that the new sharing formula for VAT is in favour of the lower tier of government because it is a tax generated at the states level.
“In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 per cent as cost of collection and that is the 15 per cent charged today came about. But we think it is too much,” he said.
The tax expert added that the burden of VAT should be on the ultimate consumer.
“So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing,” Oyedele said.
He stated: “Nigeria’s economy is more than 50 percent in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50 percent and it won’t even fly.
“So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services and accommodation will carry zero percent VAT. So for the poor and small businesses, no VAT.”
Oyedele said other consumers will pay a bit more.
“We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the mathematics with the private sector,” he explained.
Oyedele also said each state should not be granted exclusive custodianship of their collections– because it would likely result in chaos.