Tax Reform Bills: Lawyers react to ‘VAT derivation based on consumption’ in Nigeria 

The Tax Reform Bills draft was framed by a team led by Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee.

Oyedele had criticized the injustice in the current mode of VAT distribution, which considers the location where VAT is remitted, rather than where goods are supplied or consumed.

The federal government maintains that the fiscal reform agenda will devolve more resources to Nigeria’s state and local governments, ultimately benefiting the Nigerian people and fostering a democracy that works for them.

In an exclusive interview with Naijaonpoint, prominent legal practitioners shared their views on the bills and made recommendations to relevant stakeholders.

A key issue associated with the Tax Reform Bills is how VAT will be applied.

“Why don’t we just eliminate these other consumption taxes? Let’s focus solely on VAT. Make it an incentive for them. Tell the federal government, ‘Please, cede 5% of your VAT revenue to states.’ So, the federal government collects 15%, and states begin collecting 10%,” he suggested.

“Let’s give the extra 5% to states. Based on the VAT collection trend for 2024, that 5% will be close to N350 billion, which is more than five times what states are currently collecting from consumption taxes,” he added.

Ahmed Raji, SAN, in an exclusive interview with Naijaonpoint, advised that a potential solution would be to acknowledge that VAT is a consumption tax.

“For example, if banks in Kano are doing daily transactions, the tax authority in Kano should be able to inspect their books and collect VAT from them. They don’t have to remit everything to the Headquarters. By devolving VAT powers to the states, this issue would be resolved, akin to the sales tax system in the U.S., where each state manages its own tax laws. There is no central tax law in America,” he said.

“I’m not saying FIRS is right, or the Governors’ Forum is wrong. There should be collaboration, sensitization, and the exchange of ideas between both parties. However, they should not just dismiss the bill outright,” he said.

“The Northern Governors’ Forum should assemble a team of tax practitioners, administrators, and legal experts to comprehensively study the bills, identify sections that should be amended or removed, and present well-reasoned arguments for their position. These findings should be presented to the National Assembly and defended during the public hearing,” he said.

“Northern Nigeria may have a valid concern. We’ve always distributed revenue based on clear principles. So, the North is asking why the revenue-sharing formula in the proposed Tax Reform bill isn’t aligned with how we share oil revenue. This is a significant issue,” he said.

Agbakoba stressed that Nigeria will continue to struggle with equitable revenue distribution until it devolves revenue collection to the states, which would require a significant decentralization of power.

“My honest opinion is that it’s long overdue for political and economic power to be devolved from the Federal Government to states, and from states to local governments. This is the only way the economy can shift from relying on shared revenue to generating its own,” he concluded, adding that consumption tax should go to the states where the revenue is generated.