Taiwo Oyedele, the tax authority, has hinted at an imminent rise in the rate of Value-Added Tax (VAT).
As the head of the Presidential Committee on Fiscal Policy and Tax Reforms, Oyedele also revealed plans to reassess the VAT revenue distribution formula.
These revelations were made during a seminar on policy exposure and impact assessment, hosted by the committee. Oyedele further disclosed the committee’s proposal to adjust the VAT revenue share of state and local governments to a combined 90 percent.
As per Section 40 of the VAT Act, the federal government currently receives 15 percent of the tax revenue, with states and local governments sharing the remaining 50 and 35 percent, respectively. However, the committee has proposed a reduction in the federal government’s share by 5 percent.
Oyedele explained, “Our proposal is to decrease the federal government’s share from 15 percent to 10 percent. The share of states will be increased, but they will share 90 percent with local governments.”
The committee also suggested a modification to the VAT distribution mechanism. Oyedele recalled, “In 1986, states collected sales tax. The military introduced VAT in 1993, discontinued sales tax, and decided to collect VAT and return 15 percent as the cost of collection. That’s how the current 15 percent charge originated. But we believe it’s excessive.”
He emphasized the need for transparency and neutrality, citing the practices of over 100 countries with VAT. He noted, “Nigeria’s economy is predominantly service-based. If we stop here, many states will face bankruptcy due to a more than 50 percent drop in VAT collection.”
Therefore, the committee sees the need to raise the VAT rate while ensuring it doesn’t impact businesses. Basic consumption items like food, education, medical services, and accommodation will carry a zero percent VAT, protecting the poor and small businesses.
Oyedele assured, “We have consulted businesses, and they won’t raise product prices. We aim to ensure that VAT reform doesn’t lead to a price hike in commodities. We will collaborate with the private sector to work out the mathematics.”
