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The Presidential Committee on Fiscal Policy and Tax Reforms has proposed an increase in the value-added tax (VAT) rate and a revised revenue-sharing formula for the tax revenue.
The committee chairman, Taiwo Oyedele, discussed these proposals during a policy exposure and impact assessment session organized by the committee.
Under the current VAT Act, the federal government receives 15 percent of the tax revenue, while states share 50 percent, and local governments receive the remaining 35 percent.
The proposed new sharing structure would reduce the federal government’s share to 10 percent, increasing the states’ portion and allowing them to share 90 percent of the revenue with local governments.
According to Oyedele, the rationale behind this change is to place a greater burden of the VAT on the ultimate consumer, rather than on businesses.
To ensure that the burden does not disproportionately affect the poor and small businesses, basic consumption items such as food, education, medical services, and accommodation would carry zero percent VAT.
The committee also acknowledged the need to adjust the VAT rate upward, as Nigeria’s economy is heavily reliant on services, which would be affected by a decrease in VAT collection.
However, the committee aims to work closely with the private sector to ensure that product prices do not increase as a result of the proposed changes.
Despite the proposed changes, the committee believes that granting each state exclusive custodianship of their collections would likely lead to chaos.
Therefore, it is crucial to maintain a balanced approach to the distribution of VAT revenue among the different levels of government.
As the debate on fiscal policy and tax reforms continues, it remains to be seen how these proposals will be received by the government and the public, and whether they will ultimately be implemented.
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