VAT Reform: FG Seeks Balanced Distribution

FG Unveils Plan for More Equitable VAT Sharing

“This issue, in fact, affects many states across all geopolitical zones...”

Nigeria's Tax Reform: Presidential Committee Seeks Balanced Solution for Fairer VAT Distribution

Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, is pushing for a fairer Value-Added Tax (VAT) system. After the Northern States Governors Forum rejected the proposed tax amendment bill, Oyedele pointed out that the current VAT distribution model hurts many states.

In a recent post, Oyedele explained that the existing VAT approach is flawed because it allocates taxes based on where they're collected, rather than where goods and services are actually supplied or consumed. This means some states are missing out on much-needed revenue. Oyedele's committee aims to change this with a more equitable system.

Objectives of the Presidential Committee on Fiscal Policy and Tax Reforms:

Harmonization of Taxes: Simplify multiple taxes and levies at all government levels 

Revenue Transformation: Boost revenue through effective tax policies

Economic Growth Facilitation: Foster economic growth through fiscal governance reforms 

As chairman, Oyedele brings his expertise as a fiscal policy partner and Africa tax leader at PwC, with over 22 years of experience in tax advisory, policy advocacy, and business strategy consulting. His goal is to ensure Nigeria's tax system benefits all states and promotes economic growth.

“We share the sentiment expressed by the Northern governors regarding the inequity inherent in the current model of derivation as a basis for distributing VAT revenue,” the chairman said.

“This issue, in fact, affects many states across all geopolitical zones because the current derivation is mainly determined based on where VAT is remitted, rather than where goods or services are supplied or consumed.

Taiwo Oyedele is driving efforts to create a fairer tax system in Nigeria. To achieve this, his committee will collaborate closely with stakeholders to find balanced solutions that benefit everyone. This move comes after President Bola Tinubu urged the National Assembly to review and approve four crucial tax reform bills on October 13.

Bills Under Review:

Nigeria Tax Bill: Aims to overhaul the country's tax framework

Tax Administration Bill: Seeks to improve tax collection and administration

Joint Revenue Board Establishment Bill: Proposes a new revenue-sharing model

However, the northern governors have expressed concerns, urging the National Assembly to reject any legislation that might harm their region's interests. They stressed the importance of equitable national policies to prevent marginalization of any geopolitical zone. The governors' concerns highlight the need for careful consideration and inclusive decision-making in Nigeria's tax reform process.

The Legislative Process:

In Nigeria, the National Assembly plays a vital role in lawmaking. Bills must pass through multiple stages, including presentation, second reading, committee stage, third reading, and passage. Finally, the President must assent to the bill for it to become law. This process ensures thorough scrutiny and stakeholder engagement, crucial for effective tax reform.

“Our proposal aims to create a fairer system by devising a different form of derivation which takes into account the place of supply or consumption for relevant goods and services whether they are zero-rated, exempt or taxable at the standard rate.

“For example, a state that produces food shouldn't lose out just because its products are VAT-exempt or consumed in other states.

“The state where the supply originates should be recognized for its contributions. The same principle should apply to services like telecommunications-VAT distribution should reflect where subscribers are located.”