In a recent Interview, Taiwo Oyedele, Chairman of the Presidential Tax Reforms Committee stated that allowing state governments to collect Value Added Tax (VAT) could result in chaos, He explained that a similar approach was tried in the 1980s with sales tax, but subnational governments struggled to generate significant revenue from it. Oyedele argued that state-level VAT collection would reduce revenue and create significant challenges for businesses nationwide.
As indicated by Oyedele, in 1999, VAT had been implemented for about five years and had become the country’s top revenue tax. He questioned how it was overlooked in the 1999 constitution, noting that since VAT was not explicitly mentioned, lawyers argue it is a “residual matter.” This means that VAT falls under the jurisdiction of subnational governments. Oyedele explained that this is why states like Rivers and Lagos have gone to court and won, asserting that the Supreme Court could rule that VAT should be collected and managed by the states. He warned that such a ruling would create chaos, with states collecting less revenue, businesses facing difficulties, and the economy regressing.
Oyedele also highlighted a proposal from the Presidential Tax Reforms Committee aimed at improving VAT distribution. He suggested that the federal government reduce its share of VAT by 5%, allowing states to retain more of the revenue. He explained that this adjustment would provide states with a buffer for fiscal equalization, ensuring no state would collect less than under the previous system. Oyedele emphasized that the reform could significantly boost VAT revenue, potentially doubling in less than two years, as it would encourage states to focus on economic activities within their jurisdictions.
Oyedele further stated that the new tax reform bills currently before the National Assembly seek to halt tax collection by federal agencies like the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigeria Customs Service (NCS). He explained that the bills aim to remove around 60 federal agencies from tax collection duties, allowing them to focus on their core responsibilities. According to Oyedele, these measures will simplify tax collection across the country and improve the operational efficiency of the agencies involved.
