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Dr. Zacch Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), has called for urgent reforms to Nigeria’s Value-Added Tax (VAT) distribution framework, describing the current system as inherently unjust to the majority of states. Speaking during an interactive session with the House of Representatives on the proposed tax reform bills, Adedeji highlighted the disproportionate allocation of VAT revenues, with Lagos, Rivers, and the Federal Capital Territory (FCT) receiving over 70% of proceeds.
Current Inequities in VAT Distribution
Adedeji revealed that in October, Lagos State alone received 42% of VAT proceeds, with Rivers receiving 16%, Oyo 5.2%, and the FCT 10%. This distribution, he argued, is heavily skewed in favor of states hosting the headquarters of major revenue-generating companies, even though their goods and services are consumed nationwide.
“For example, MTN, a leading telecommunications provider, contributes the highest VAT to Lagos because its headquarters is located there, despite its services being used across Nigeria,” Adedeji explained.
He emphasized that the present structure neglects the reality that 70% of Nigerians consuming these products and services reside outside these regions.
Impact on Other States
The FIRS boss highlighted the stark disparity in VAT allocations, noting that states like Borno and Bauchi receive just 0.32% and 0.4% of VAT proceeds, respectively, compared to Lagos’ 42%.
“Whenever I sign off on such distributions, I question whether this truly reflects the values and unity of our nation,” Adedeji said, underscoring the need for reforms to ensure equity.
Proposed Reforms
The proposed tax reform bills aim to realign VAT distribution to reflect consumption patterns rather than the location of corporate headquarters. Adedeji assured lawmakers that the reforms would benefit all states, particularly those outside the current revenue-heavy regions.
“This bill ensures that irrespective of a state’s economic activity level, all states will receive a fair share based on actual consumption,” he stated.
Debate Among Lawmakers
Adedeji’s remarks drew applause from many lawmakers but also raised concerns. Babajimi Benson (APC, Lagos) and Adamu Yusuf Gagdi (APC, Plateau) expressed reservations about the impact on their respective states.
Gagdi questioned how northern states with conflict-displaced populations could benefit from VAT reforms tied to consumption and import-related taxes. Adedeji reiterated the necessity of addressing long-standing inequalities to foster a sense of unity and fairness.
Conclusion
The FIRS Chairman urged lawmakers to support the reforms, emphasizing that they represent the wisdom of President Bola Ahmed Tinubu’s administration in ensuring equitable resource distribution. “This is not just about taxes; it’s about justice and fairness for every Nigerian state,” Adedeji concluded.
The proposed reforms, if enacted, could mark a significant shift in Nigeria’s fiscal federalism, promoting greater inclusivity and equity across the federation.
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