Nigeria: Presidential Committee Recommends VAT Increase and New Revenue Sharing Formula

Presidential Committee Recommends VAT Increase and New Revenue Sharing Formula
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The presidential committee on fiscal policy and tax reforms has proposed an increase in the value-added tax (VAT) rate, along with a revision of the VAT revenue-sharing formula.

Speaking at a policy exposure and impact assessment session organized by the committee, the committee chairman, Taiwo Oyedele, highlighted the need for these changes. He disclosed that the committee suggests reviewing the share of VAT revenue allocated to states and local governments, proposing an increase to 90 percent from the current 85 percent.

Currently, according to section 40 of the VAT Act, the federal government receives 15 percent of the tax revenue, while states and local governments share 50 percent and 35 percent, respectively.

Under the proposed new sharing structure, the federal government’s share would decrease from 15 percent to 10 percent. States’ share would increase, with 90 percent of VAT revenue to be shared between states and local governments.

Explaining the rationale behind the new sharing formula, Oyedele emphasized that VAT is primarily generated at the state level, dating back to the introduction of VAT in 1993. He stressed that the burden of VAT should ultimately fall on the ultimate consumer, highlighting the need for transparency and neutrality in its application.

To mitigate the impact on the less privileged and small businesses, Oyedele suggested exempting basic consumption items such as food, education, medical services, and accommodation from VAT. For other consumers, the committee proposes a slight increase in VAT rates.

Assuring that the VAT reform would not lead to price hikes, Oyedele stated that discussions have been held with businesses to ensure minimal disruption. Additionally, he cautioned against granting each state exclusive custodianship of their collections, warning of potential chaos.

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