Tax Reform Payments: Legal professionals react to ‘VAT derivation based mostly on consumption’ in Nigeria 

Nigerian legal professionals have shared their views on the proposed derivation of Worth Added Tax (VAT) based mostly on consumption.

The Tax Reform Payments draft was framed by a crew led by Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Coverage and Tax Reforms Committee.

Oyedele had criticized the injustice within the present mode of VAT distribution, which considers the situation the place VAT is remitted, fairly than the place items are provided or consumed.

The federal authorities maintains that the fiscal reform agenda will devolve extra sources to Nigeria’s state and native governments, in the end benefiting the Nigerian folks and fostering a democracy that works for them.

In an unique interview with Nairametrics, outstanding authorized practitioners shared their views on the payments and made suggestions to related stakeholders.

Contentions Surrounding VAT 

A key concern related to the Tax Reform Payments is how VAT can be utilized.

• At a latest occasion with tax consultants, Oyedele said that it’s inappropriate for a number of consumption taxes to exist throughout states, emphasizing that states ought to discontinue their consumption taxes.

“Why don’t we simply eradicate these different consumption taxes? Let’s focus solely on VAT. Make it an incentive for them. Inform the federal authorities, ‘Please, cede 5% of your VAT income to states.’ So, the federal authorities collects 15%, and states start gathering 10%,” he instructed.

“Let’s give the additional 5% to states. Primarily based on the VAT assortment pattern for 2024, that 5% can be near N350 billion, which is greater than 5 instances what states are at present gathering from consumption taxes,” he added.

• Nonetheless, Governors of the 19 Northern states, together with conventional rulers and stakeholders from the area, have expressed opposition to the invoice, notably regarding the draft for VAT distribution based mostly on derivation. Most lawmakers from the Northern bloc have aligned with their place.

 What Nigerian legal professionals are saying 

Ahmed Raji, SAN, in an unique interview with Nairametrics, suggested {that a} potential answer can be to acknowledge that VAT is a consumption tax.

• He famous that VAT, as a consumption tax not lined by the unique checklist and never expressly talked about within the 1999 Structure, must be regulated by every state.
• Raji defined that the federal authorities ought to deal with VAT associated to imports
• and exports, whereas every state ought to handle its personal VAT, with exceptions for imports, exports, and free commerce zones (assuming VAT applies there).

“For instance, if banks in Kano are doing every day transactions, the tax authority in Kano ought to be capable to examine their books and acquire VAT from them. They don’t must remit every thing to the Headquarters. By devolving VAT powers to the states, this concern can be resolved, akin to the gross sales tax system within the U.S., the place every state manages its personal tax legal guidelines. There is no such thing as a central tax legislation in America,” he stated.

• Raji believes that permitting states to handle their very own VAT would foster wholesome competitors, encouraging extra aggressive tax regimes and the pursuit of optimum programs.
• He additionally emphasised the necessity for collaboration and public sensitization to make sure the general public understands the advantages of the proposed tax payments.
• Raji suggested the federal authorities to have interaction state governors and different stakeholders constructively in order that they perceive the advantages of the proposed tax reforms.
• He additionally advocated for extra City Corridor conferences throughout Nigeria’s six geopolitical zones to make clear any gray areas of the payments.

“I’m not saying FIRS is correct, or the Governors’ Discussion board is fallacious. There must be collaboration, sensitization, and the trade of concepts between each events. Nonetheless, they need to not simply dismiss the invoice outright,” he stated.

• Chief Rafiu Oyeyemi Balogun, SAN, in an unique interview, defined that the contentions surrounding the brand new Tax Reform Payments, which have handed their second studying within the Nationwide Meeting, should not surprising given Nigeria’s numerous tribes and spiritual variations.
• He cautioned that rejecting the invoice fully might be counterproductive, doubtlessly hindering the expansion of tax administration and governance in Nigeria.
• He suggested that the rule of legislation ought to prevail, permitting stakeholders to current their positions on the payments to the Nationwide Meeting for consideration.

“The Northern Governors’ Discussion board ought to assemble a crew of tax practitioners, directors, and authorized specialists to comprehensively research the payments, determine sections that must be amended or eliminated, and current well-reasoned arguments for his or her place. These findings must be introduced to the Nationwide Meeting and defended through the public listening to,” he stated.

• If the derivation rules in VAT income distribution are the core concern in some quarters, Balogun instructed that this concern might be singled out and addressed individually.

• In a press release shared with Nairametrics, Dr. Olisa Agbakoba, SAN, expressed help for the tax reform invoice from a income technology perspective, notably because it targets company entities and the wealthier lessons.

“Northern Nigeria might have a legitimate concern. We’ve all the time distributed income based mostly on clear rules. So, the North is asking why the revenue-sharing components within the proposed Tax Reform invoice isn’t aligned with how we share oil income. This can be a important concern,” he stated.

Agbakoba harassed that Nigeria will proceed to battle with equitable income distribution till it devolves income assortment to the states, which might require a big decentralization of energy.

“My trustworthy opinion is that it’s lengthy overdue for political and financial energy to be devolved from the Federal Authorities to states, and from states to native governments. That is the one method the financial system can shift from counting on shared income to producing its personal,” he concluded, including that consumption tax ought to go to the states the place the income is generated.