The subject article presents critical claims regarding the potential implications of the Tax Reform Bill, particularly concerning how revenue is attributed and derived across Nigeria.
Below is a fact-checked breakdown, an analysis of the impacts on the Southeast region, and proposed improvements for state governors.
- Fact Check of Claims
Claim 1: “60% of VAT will go to the state of collection.”
Verdict: Likely True.
Recent global tax reforms and those in Nigeria emphasise revenue allocation that favours the state in which economic activities occur. However, the “state of the collection” definition often defaults to the company’s registered headquarters unless explicitly defined to reflect the state of economic activity or consumption.
Claim 2: VAT from First Bank branches in Anambra will be credited to Lagos because of its headquarters.
Verdict: Correct if the bill does not address tax attribution.
Without explicit provisions for area-based tax attribution, VAT collections from businesses across multiple states will disproportionately favour Lagos, where most company headquarters are.
Claim 3: MTN VAT from Anambra will also go to Lagos.
Verdict: True.
This pattern has been observed in both the telecommunications and banking industries. Companies typically credit VAT based on their headquarters rather than the service provision or consumption location.
Claim 4: Attribution to the area of collection is the global standard.
Verdict: Correct.
Globally, tax systems focus on attribution based on the consumption location or point of sale. The existing structure in Nigeria disproportionately benefits Lagos, which already maintains a competitive economic edge.
Claim 5: Under this system, the South East and South-South are at risk of extortion.
Verdict: True.
States characterised by significant consumption yet fewer corporate headquarters (such as those in the Southeast) stand to lose unless the reform includes principles of attribution.
- Implications for the South East
Key Implications:
- Revenue Loss:
States in the Southeast (e.g., Anambra, Enugu, Abia) are expected to contribute VAT from consumption within their territories but will see most of these funds allocated to Lagos or Ogun, where corporate headquarters are situated.
- Economic Inequality:
Lagos and Ogun’s economic dominance will likely strengthen, while states like Anambra, which contribute considerably to national consumption, remain underfunded.
- Erosion of Local Economic Benefits:
The inability to retain VAT revenues hampers opportunities for infrastructure development, social services, and local economic growth.
- Incentives for Business Relocation:
The current system dissuades businesses from establishing headquarters in the Southeast, as the region does not benefit from revenue retention.
- Proposed Improvements for South-East Governors
To mitigate these challenges, governors of the South East must take the following urgent actions:
Policy and Legal Interventions:
- Lobby for Tax Attribution Reform:
Advocate for explicit clauses in the tax reform bill that mandate attribution to the state of collection before derivation, referencing global best practices in tax policy.
- Collaboration with Other Regions:
Form alliances with governors from the South-South, Middle Belt, and other regions likely to encounter disadvantages from the reform. Use collective influence to propose amendments in the National Assembly.
- Engage Tax Experts:
Establish a regional tax study group that includes international and local tax experts to analyse the reform and formulate actionable strategies. States like Rivers have successfully leveraged expert advice to maximise oil revenue benefits.
Strategic Economic Development:
- Promote Local Business Registration:
Provide incentives, such as tax holidays and reduced fees, for companies to register their headquarters in the Southeast. Consider implementing special economic zones in Enugu or Onitsha to attract corporate offices.
- Invest in State-Level Tax Systems:
Enhance local tax collection systems like the State Internal Revenue Services to capture non-VAT revenues, including personal and property taxes.
- Encourage Digital Economy Growth:
Focus on attracting fintech and digital companies that rely less on physical headquarters.
Public Advocacy and Political Action:
- Raise Awareness:
Mobilise public opinion through media campaigns that underscore how this reform could disadvantage the South East.
- Engage National Assembly Members:
Ensure that Southeast lawmakers advocate for amendments that incorporate attribution-based revenue sharing during the legislative review.
- Practical Examples for South East Leaders
Case Study 1: Rivers State and Oil Revenue:
Rivers State successfully secured additional derivation funds through legal strategies and policy initiatives. South-East states can adopt similar measures regarding VAT collection.
- Conclusion and Call to Action
The existing revenue attribution structure presents significant challenges for the Southeast region. Policymakers must take decisive action to amend the Tax Reform Bill to establish fair revenue-sharing mechanisms that recognise the contributions of all areas within Nigeria.
