A new twist has emerged in the ongoing tax reform debate in Nigeria as the chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, has challenged recent claims made by the Revenue Mobilisation and Fiscal Allocation Commission (RMAFC).
Oyedele’s statements come amid increasing tension over the proposed Value Added Tax (VAT) sharing formula.
He accused the RMAFC, led by Mohammed Bello Shebi, of misunderstanding the complex nature of VAT and its historical context.
“VAT was introduced in 1993 to replace the state-administered sales tax,” Oyedele said. “It is centrally collected for efficiency, but it remains fundamentally a state tax.”
The tax expert emphasized that 85% of VAT revenue is already distributed to states, with the federal government retaining only 15%.
“This reflects an understanding among the tiers of government,” Oyedele added. “The federal government takes only a fraction of the VAT generated by the Federal Capital Territory (FCT) and import VAT.”
A Tax Older than the 1999 Constitution
Oyedele further highlighted that VAT predates Nigeria’s 1999 Constitution, which makes it a “residual matter” under state control.
He pointed out that VAT is paid into a special pool account rather than being treated as part of the federation’s general revenue.
The presidential committee chairman likened VAT to stamp duties, which are also state-controlled and distributed without interference from the RMAFC.
“It’s important to note that RMAFC’s advisory role under Section 162 of the Constitution does not extend to VAT,” Oyedele said.
Debunking Misconceptions
Oyedele also dismissed some of the RMAFC’s claims as either inaccurate or requiring clarification.
For instance, the RMAFC had suggested that VAT consumption should be tied to the taxpayer’s location.
Oyedele disagreed, stating, “VAT, unlike income tax, is not based on taxpayer residence.”
He explained that VAT has a built-in mechanism to ensure revenue is correctly attributed to each location during the production and consumption process.
“Even when an asset is purchased in Lagos for use in Kano, the VAT system ensures only the value added in Kano is attributed to the state,” Oyedele clarified.
He also argued against the need for sophisticated technology to track VAT consumption.
“All businesses need to do is indicate the location of sales in their VAT returns as stipulated under Section 22(12) of the Nigeria Tax Administration Bill,” he said.
Oyedele further corrected the RMAFC’s claim about the current VAT revenue-sharing formula.
“The distribution is not 50% derivation, 35% population, and 15% equality as the commission stated,” he said. “It’s actually 20% derivation, 50% equality, and 30% population.”
A Call for Collaboration
While Oyedele did not dismiss RMAFC’s concerns outright, he urged the commission to join the ongoing consultations with stakeholders.
“We need a constructive and objective approach,” Oyedele said. “This moment calls for finding a workable solution, not creating more controversies.”
He criticized RMAFC’s past efforts, particularly the nationwide consultation on revenue sharing conducted three to four years ago.
“VAT was excluded from that exercise despite its obvious inequities,” he pointed out. “Years later, the outcome of that consultation is still pending.”
Oyedele warned that disputes over VAT could lead to legal challenges that might place the tax entirely under state administration.
“This requires urgent political solutions to avoid that risk,” he emphasised.
The presidential committee chairman concluded by reiterating his commitment to a balanced resolution of the VAT issue.
“We must work together to move our nation forward,” Oyedele said.
The debate over VAT reform highlights broader challenges in Nigeria’s fiscal policies, particularly the need for clarity and collaboration between federal and state authorities.
