Sequel to the reported opposition of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), to the VAT reforms, the Chairman, Presidential Fiscal Policy & Tax Reforms Committee, Taiwo Oyedele has made more clarifications.
Oyedele made the clarification via his X handle, @taiwoyedele in a statement on Wednesday.
NPO reports that the RMAFC Chairman, Dr. Mohammed Shehu, had earlier dismissed allegations of its opposition, describing it as “false” and “malicious.”
Highlighting issues that the reforms seeks to address, Oyedele noted that the VAT was introduced via a decree in 1993 to replace the sales tax which was being administered by states at the time.
Although, the tax is centrally collected to ensure better efficiency and manage the intricacies of the multi-layered nature of VAT, there is a recognition that VAT remains a state tax.
Therefore, 85% of the revenue is distributed to states with the federal government retaining only 15% which is a fraction of the VAT generated by the FCT and import VAT that ordinarily belong to the federal government.
“The sustained central collection and sharing formula therefore reflect this understanding among the tiers of government.
“The tax predates the 1999 Constitution and despite having been in operation for over 5 years, the tax is not mentioned in the 1999 Constitution making it a residual matter within the purview of the states.
“As a result of the above, VAT is paid into a special pool account and not treated along with the other revenues accruable to the federation for which the RMAFC is expected to play an advisory role regarding the sharing formula as contained in section 162 of the 1999 Constitution.
“A similar revenue item is stamp duties which also belong to states and it is meant to be shared among them based on 100% derivation without any requirement for the RMAFC to be involved in determining the sharing formula.”
The statement further highlighted the consequences of the pending case by Rivers and Lagos states seeking to administer VAT as a state tax in view of the perceived inequity in the current distribution formula at the Supreme Court
“If the case, which is pending at the Supreme Court succeeds:
“States will lose the opportunity to share VAT revenue among themselves as any revenue generated by each state will be retained 100%, i.e. 100% derivation model.
“Import and international VAT will become the sole revenue of the federal government along with FCT VAT, which altogether account for more than 50% of the current VAT revenue compared to the 15% being shared by the federal government that is proposed to reduce to 10% under the tax bills in favour of states.
“Moving away from the central collection of VAT will not only lead to significant revenue loss of over 50% for all the states, they will also face challenges in collecting VAT as evident from the old sales tax regime administered by states and the consumption tax being collected currently by some states.
“This will make states and local governments vulnerable and further increase subnational fiscal risks with the attendant economic and social consequences.
“There will also be challenges to commerce and interstate trade in addition to the cascading effect on inflation.”
NPO reports that the tax reform bills proposal has sparked nationwide debate, particularly in regards to the allocation derivation of Valued Added Tax.