Tax expert and Chairman of the Presidential Fiscal Policy and Tax Reform Committee (PFPTRC), Mr. Taiwo Oyedele, has clarified that Value Added Tax (VAT) is to be shared based on derivation and consumption, according to the proposal in the Tax Bill before the National Assembly.
According to him, the proposal in the Bill will guarantee fairness and long-standing criticisms of the existing distribution formula.
Oyedele was responding to the criticism to the VAT plan in the Tax Bill by the Northern State Governors’ Forum (NSGF) and Northern Council of Traditional Rulers and Chiefs at their joint meeting in Kaduna recently.
Before now, there had been serious argument that for instance, if your zone does not consume alcohol due to official restriction, you have no business gaining from VAT generated from its consumption in other zones.
Oyedele on his X (formally twitter) handle, said: “A state that produces food shouldn’t lose out just because its products are VAT-exempt or consumed in other states.”
Oyedele argued that VAT from services, including telecommunications, should also reflect the location of subscribers, thereby benefitting the states where goods or services originate.
Acknowledging the governors’ concerns, he said the current VAT distribution is flawed.
He added: “Currently, VAT revenue is allocated with 15 percent going to the Federal Government, 50 percent to states and the Federal Capital Territory, and 35 percent to local governments.
“Although the VAT Act does not clearly outline specific distribution details, a minimum of 20 percent of VAT revenue to states and local governments is based on derivation, while additional distribution factors include equality (50 percent) and population (30 percent).”
The Northern Governors Forum, chaired by Gombe State Governor Muhammadu Inuwa Yahaya, had complained that the proposed distribution could undermine Northern interests.
The forum urged lawmakers to oppose the tax bill and any measures perceived as detrimental to the region.
However, Oyedele called for collaboration among stakeholders, stressing that the proposed model would establish a fairer VAT distribution system that would benefit states equitably based on their contributions and needs.
