By: Mikeh Odeh, Abuja.
Taiwo Oyedele, chairman of the presidential committee on tax policy and fiscal reforms, has called on the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) to prioritize finding workable solutions rather than inciting further controversy regarding the value-added tax (VAT) collection process.
On December 9, the RMAFC expressed opposition to the proposed VAT sharing formula outlined in the tax reform bills, citing potential constitutional violations. The commission asserted that the 1999 Constitution (as amended) grants it exclusive authority to determine equitable revenue sharing among the three tiers of government.
In a clarification posted on X on Wednesday, Oyedele highlighted that tax regulations predate the 1999 Constitution, despite having been in effect for over five years. He pointed out that VAT is not explicitly mentioned in the Constitution, categorizing it as a residual matter under state jurisdiction.
“VAT is paid into a special pool account and is not treated alongside other revenues that the RMAFC advises on regarding the sharing formula as stipulated in Section 162 of the 1999 Constitution,” he explained. Oyedele further compared VAT to stamp duties, which also belong to states and are shared based on 100% derivation, without requiring RMAFC involvement in determining the sharing formula.
VAT Collection Based on Consumption, Not Residence.
The committee chairman elaborated that the proposed VAT revenue-sharing formula aims to address critical issues inherent to the current VAT regime. He explained that VAT operates as a consumption-based levy, where revenue is linked to the location of consumption rather than the taxpayer’s residence or the business’s registration location.
“VAT consumption needs to be determined based on taxpayer residence. This is not the case with VAT or any consumption tax, unlike income tax,” Oyedele stated.
He illustrated that purchasing an asset in Lagos for use in Kano does not complicate VAT collection, as the system has mechanisms for input and output VAT that attribute revenue to the appropriate jurisdiction based on incremental value added.
“There is no need for technology to track the location of consumption; every eligible business will simply indicate the location of sales in its VAT returns, as stipulated under Section 22(12) of the Nigeria Tax Administration Bill,” he added.
Oyedele argued that it is impractical to link VAT collections to end-user locations, especially for services or digital goods that are inherently intangible.
Regarding the distribution of VAT revenue among states, he clarified that it is based on a formula of 20% derivation, 50% equality, and 30% population, contrary to the RMAFC’s assertion of a 50% derivation, 35% population, and 15% equality formula.
He acknowledged the RMAFC’s previous efforts, including a nationwide consultation on the review of the federation revenue sharing formula, which excluded VAT from the discussion despite evident inequities. “The outcome of the revenue-sharing consultation remains unresolved years later,” he noted.
With ongoing disputes surrounding VAT administration, Oyedele emphasized the need for a political solution to mitigate the risk of the tax being deemed a state-administered levy. He urged the RMAFC to engage in constructive dialogue with key stakeholders to reach a broadly acceptable resolution.
In closing, Oyedele called for a collaborative and objective approach during this period, focusing on finding workable solutions while avoiding further controversies, ultimately striving to advance Nigeria’s economic progress.
