The presidential committee on fiscal policy and tax reforms has emphasized the necessity of a value-added tax (VAT) rate increase. During the policy exposure and impact assessment session organized by the committee, Taiwo Oyedele, the committee chairman, revealed plans to review the VAT revenue-sharing formula.
Referring to section 40 of the VAT Act, Oyedele outlined the current distribution: the federal government receives 15 percent, states receive 50 percent, and local governments receive the remaining 35 percent. The proposed adjustment entails reducing the federal government’s share from 15 percent to 10 percent while increasing states’ share, with 90 percent of their allocation going to local governments.
Oyedele underscored the historical context, noting the transition from state sales tax to federal VAT in 1993. He argued that the current 15 percent retained by the federal government for collection costs is excessive. Moreover, he advocated for VAT to be transparent and neutral, aligning with international standards observed by over 100 countries.
Regarding Nigeria’s service-based economy, Oyedele warned that without adjustments, many states would face financial strain due to reduced VAT revenue. To mitigate adverse effects, he proposed exempting basic necessities like food, education, medical services, and accommodation from VAT.
Addressing concerns about price hikes, Oyedele assured that businesses would not increase product prices. Collaboration with the private sector would ensure a smooth transition through VAT reform.
Finally, Oyedele cautioned against granting exclusive VAT collection rights to states, fearing potential chaos.