- Taiwo Oyedele warned that state-level VAT collection could harm businesses and destabilise Nigeria's economy
- Oyedele highlighted the risks of uneven revenue generation and potential chaos in the tax system if states control VAT
- The chairman advocated for a revised VAT distribution formula that maintains fairness and encourages state-level economic growth
The Chairman of the Presidential Tax Reform Committee Mr. Taiwo Oyedele, has warned sternly about the potential consequences of allowing state governments to collect Value-Added Tax (VAT).
Speaking at a recent public forum, Oyedele cautioned that such a move could severely harm businesses, disrupt economic stability, and undermine Nigeria's tax revenue system.
His remarks come amid ongoing legal and political debates over VAT collection, with some states, most notably Rivers and Lagos, seeking to take control of VAT collection from the federal government.
Oyedele, who has played a pivotal role in Nigeria's tax reform efforts, pointed to the historical context of sales tax in the 1980s as evidence that subnational governments lack the infrastructure and capacity to manage VAT effectively.
Oyedele drew attention to the evolution of VAT in Nigeria, noting that while the 1979 Constitution did not include VAT, it was introduced in the mid-1990s as a key source of revenue for the federal government.
He explained that VAT had quickly become one of the country's top revenue-generating taxes, yet was absent from the 1999 Constitution a critical oversight, according to Oyedele, given its subsequent prominence.
"By 1999, we were writing the constitution for the 4th Republic, and yet we failed to include VAT, despite it becoming a vital source of revenue for the nation," Oyedele said.
He added that, under current legal interpretations, VAT collection is considered a "residual matter," meaning that, technically, it could be managed by sub-national entities like state governments.
However, he cautioned that this shift could lead to significant chaos.
"If we get a judgment from the Supreme Court today saying that VAT should be collected and administered by the states, it will lead to a chaotic situation. States will collect less, businesses will suffer, and the economy will retrogress," Oyedele warned.
Oyedele further elaborated that allowing individual states to collect VAT would likely result in uneven revenue generation.
States without robust economic activity would be at a disadvantage, while those with more business hubs would benefit disproportionately, exacerbating economic inequalities.
"On balance, the new tax reform is meant to treat everyone equitably," he stressed.
"If states collect VAT at their level, many will find that they do not make as much money as they expect, which could lead to a shrinking of the tax base, impacting both businesses and consumers."
He also pointed out that a significant portion of Nigeria's VAT revenue currently comes from imports and international services, which are not attributed to any specific state but are pooled and shared across the country.
Under the current sharing formula, VAT is distributed among states based on derivation (20%), equality (50%), and population (30%).
Oyedele argued that the current approach is more balanced and efficient, proposing a revised formula where 60% of VAT revenue would be shared based on derivation, 20% on population, and 20% on equality.
This, he believes, would ensure that the system remains fair while also encouraging economic growth at the state level.
The ongoing legal battle over VAT collection is primarily centred in the Rivers, and Lagos states, both of which have successfully argued in court that they should be allowed to collect VAT within their jurisdictions.
The Federal Government, however, has pushed back against these moves, fearing that allowing state-level VAT collection could destabilise the broader tax system.
While the issue remains unresolved, Oyedele's warning underscores the complex nature of Nigeria's tax framework and the potential consequences of decentralizing VAT collection.
VAT rate hasn’t been increased, remains 7.5%, Finance Minister Edun clarifies
Meanwhile, TheRadar earlier reported that the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, declared that the rate for Value-Added Tax (VAT) has not been increased but remains 7.5 per cent as contained in the relevant tax laws and chargeable on goods and services.
Edun’s clarification came on the heels of recent media reports of an imminent increase in VAT following the statement by the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, in June that the plans to increase the VAT rate to 10 per cent will be implemented in phases.
