Taiwo Oyedele: Businesses will suffer, economy will retrogress if states collect VAT

Taiwo Oyedele, chairman of the presidential tax reform committee, says businesses will suffer and the economy will retrogress if state governments are allowed to collect value-added tax (VAT).

Oyedele spoke on Friday during an interview on Channels Television’s Hard Copy programme.

According to the tax committee chairman, a similar approach was attempted in the 1980s with sale tax, but the sub-national governments failed to generate significant revenue through it.

“By 1999, we were writing the constitution because we now have the 4th republic. But what we did was to just replicate the 1979 constitution,” Oyedele said.

“In 1979, there was no VAT. So there was no VAT in the 1979 constitution.

“However, by 1999, we had implemented VAT for about five years. And it was becoming our top revenue tax. How on earth did we forget to put it in the 1999 constitution? Because it wasn’t stated in the 1999 constitution, lawyers will state to you that it’s a residual matter. 

“Because it’s a residual matter means it belongs to the subnational. That’s why Rivers state and Lagos have been to court and won.

“If we get a judgment from the supreme court today, it will tell you that VAT should be collected and administered by states. That will be chaotic.

“States will collect less, businesses will suffer, the economy would retrogress.

“On balance, the new reform is meant to treat everybody equitably. Try to get us out of the impression that when you start doing VAT at state level, you make so much money, which is not the case.

“In fact, today, the VAT on imports and international services is actually more than the VAT we collect in Nigeria, within our jurisdiction. 

“And that amount that is collected from international services and import VAT is not attributed to any state. It goes into the pool and is shared.

“So, today we shared VAT between and among states based on derivation, 20 percent; based on equality, 50 percent; and based on population, 30 percent we are proposing that correct derivation and share, 60 percent based on derivation, 20 percent based on population and 20 percent based on equality.”

‘PROPOSAL FOR FG TO REDUCE VAT SHARE’ 

Oyedele also said another more attractive proposal by the committee, is to allow the federal government to reduce its VAT share, and give room for states to have more.

“We thought it was going to be very difficult for the federal government,” he said. 

“We asked the federal government, can you please seed 5 percent of your share to the state instead of taking 15 percent, why don’t you take 10 percent, now we have 5 percent that can give us a buffer that we can use to do fiscal equalisation and actually writing the law to guarantee every state that as a result of our reform, you will not collect less than you would have collected under the old formula. 

“I thought that should be good enough. It’s actually just saying to you as a state that your risk is zero, but the upside is significant.

“Your VAT revenue can double in less than two years if they allow this reform to go through, because it would also motivate states to take interest in the economic activities within their jurisdiction.”

Oyedele further said the new tax reform bills under consideration at the national assembly will halt revenue collection by federal agencies such as the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Customs Service (NCS).

He said the bills aim to stop approximately 60 federal agencies from collecting taxes, allowing them to focus on their primary mandates.

The committee chairman added that the new measures will simplify tax collection across the country and enhance the operational capacity of the agencies.

On October 3, President Bola Tinubu asked the national assembly to consider and pass four tax reform bills.

The bills include the Nigeria tax bill, the tax administration bill, and the joint revenue board establishment bill.

According to the bill, VAT would be increased to 10 percent by 2025 and reduce company income tax (CIT) to 27.5 percent from an average of 30 percent over the same period.

Also, personal income tax (PIT) will be raised to 25 percent for high earners from next year, from about 20 percent.