Presidency’s Committee Proposes VAT Rate Increase and Revenue Sharing Formula.
The Presidency, through its Committee on Fiscal Policy and Tax Reforms, has announced plans to increase the value-added tax (VAT) rate in Nigeria. Taiwo Oyedele, the Chairman of the committee, disclosed this during a policy exposure and impact assessment session organized by the committee earlier this week.
Currently, Nigeria’s VAT rate stands at 7.5 percent. Oyedele, a tax expert, stated that the committee has proposed reviewing the VAT revenue-sharing formula.
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According to him, the committee recommends increasing states and local governments’ share of VAT revenue to 90 percent, while reducing the federal government’s share from 15 percent to 10 percent.
Oyedele explained, “We are proposing that the federal government’s portion should be reduced from 15 percent to 10 percent. States’ portion will be increased but they would share 90 percent with local governments.”
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The rationale behind the proposed adjustment in the sharing formula is that VAT is primarily a tax of the states. Oyedele highlighted the historical context, stating that VAT replaced sales tax in 1993, with the federal government collecting VAT and retaining 15 percent as the cost of collection. However, the committee believes that this percentage is excessive.
Moreover, Oyedele emphasized that the burden of VAT should fall on the ultimate consumer. He proposed maintaining zero percent VAT on basic consumption items such as food, education, medical services, and accommodation to alleviate the impact on the poor and small businesses.
While discussing the potential increase in VAT rate, Oyedele assured that businesses would not pass on the additional costs to consumers. He underscored the importance of collaboration with the private sector to ensure that VAT reform does not lead to price hikes.
Additionally, Oyedele argued against granting exclusive custodianship of VAT collections to individual states, warning that such a move could result in chaos.
The committee’s proposal signifies a significant potential shift in VAT policy in Nigeria, with implications for revenue distribution and consumer spending. However, further deliberations and stakeholder consultations are expected before any changes are implemented.
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