The Chairman of the Presidential Tax Reform Committee, Taiwo Oyedele, has disclosed that the proposed tax reform bills will remove all subnational consumption levies, except Value Added Tax.
Oyedele in an explainer released on Monday clarified that the bills aim to simplify existing tax laws and resolve ongoing complexities.
He also addressed concerns regarding the VAT allocation model, emphasizing that no state will be disadvantaged by the new approach to the derivation of VAT revenues.
He expounded that the proposed tax reform law includes a provision for a 5% allocation dedicated to equalization transfers. This fund is designed to compensate states that might collect less revenue under the new VAT derivation model, ensuring that no state is left at a disadvantage.
“Imposition of parallel consumption taxes in some states along with VAT which increases the tax burden on the people and contributes to multiple taxation. The reform seeks the discontinuation of all consumption taxes other than VAT.
“The controversy has arisen from the perception that the proposed formula would lead to lower revenue for some states. However, the 5% to be ceded by the FG can be set aside for equalisation transfers to cater for any shortfall to a state under the new model.
“This ensures that no state is worse off in the short term while significantly enhancing economic activities and revenue for all states in the medium to long term,” Oyedele said.
Oyedele also responded to concerns about whether other revenue agencies, such as the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Customs Service, would be scrapped or merged as part of the tax harmonization plan.
He clarified that this would not be the case. Instead, these agencies will maintain their regulatory functions and continue to operate independently. Their funding will be allocated through the standard budgetary procedures.
However, he noted that these agencies will no longer be responsible for collecting regulatory fees within their respective sectors, as this responsibility will shift to the tax authorities under the new reforms.
The new tax bills currently being considered in the National Assembly propose a derivation-based approach to the allocation of VAT revenues between the federal government and sub-national entities, which has sparked significant controversy.
Northern elites, in particular, have strongly rejected the bills, arguing that their region may not benefit as much under the proposed changes.
Under the existing Section 40 of the VAT Act, VAT revenue is distributed as follows: 15% to the Federal Government, 50% to the States and the Federal Capital Territory (FCT), and 35% to Local Governments.
The allocation to states and local governments includes a derivation principle, with at least 20% of the share distributed based on the revenue generated within each region.
