FG Plans for Additional VAT Raise and Adjusted Revenue Distribution Mechanism
The presidential committee on fiscal policy and tax reforms has proposed an increase in the value-added tax (VAT) rate in Nigeria, along with a revision of the VAT revenue-sharing formula. Committee Chairman Taiwo Oyedele made these remarks during a policy exposure and impact assessment session organized by the committee.
Under the proposed changes, the committee suggests reviewing the share of VAT revenue allocated to state and local governments. Currently, states receive 50 percent of the revenue, while local governments receive 35 percent, leaving the federal government with 15 percent. The committee proposes increasing the share allocated to states and local governments to 90 percent, with states then sharing 90 percent of their portion with local governments. This would reduce the federal government’s share from 15 percent to 10 percent.
Oyedele explained that VAT is primarily generated at the state level and therefore the proposed sharing formula favors the lower tiers of government. He highlighted the historical context of VAT implementation in Nigeria and emphasized the need for a more equitable sharing structure.
The committee also aims to ensure that the burden of VAT falls on the ultimate consumer. Oyedele stated that basic consumption items such as food, education, medical services, and accommodation would be exempt from VAT, benefiting the poor and small businesses. For other consumers, there may be a slight increase in VAT, but the committee aims to prevent businesses from passing on the additional costs to consumers.
Regarding the administration of VAT collections, Oyedele emphasized the importance of a unified approach rather than granting exclusive custodianship to individual states to avoid potential chaos. The committee aims to collaborate with the private sector to ensure that VAT reforms are implemented smoothly and do not lead to price increases for consumers.
