The presidential committee on fiscal policy and tax reforms has recommended an increase in the value-added tax (VAT) rate, along with a review of the revenue-sharing formula.
During a policy exposure and impact assessment session organized by the committee, Chairman Taiwo Oyedele disclosed that the committee proposes to review the VAT revenue-sharing formula, suggesting an increase in the share allocated to state and local governments.
Currently, according to section 40 of the VAT Act, the federal government receives 15 percent of the tax revenue, while states share 50 percent and local governments receive the remaining 35 percent.
Under the proposed new sharing structure, the federal government’s share would be reduced from 15 percent to 10 percent, with states sharing 90 percent with local governments.
Oyedele explained that the rationale behind the new sharing formula is that VAT is primarily generated at the state level. He cited historical context, noting that VAT replaced the sales tax collected by states in 1993, with the federal government charging 15 percent as the cost of collection.
However, he emphasized that the burden of VAT should ultimately fall on the ultimate consumer. To ensure transparency and neutrality, basic consumption items such as food, education, medical services, and accommodation would be exempt from VAT.
While discussing the potential impact on businesses, Oyedele assured that the committee aims to prevent an increase in product prices. He stated that businesses have been consulted, and adjustments would be made to ensure that commodities remain affordable.
Additionally, Oyedele suggested that each state should not have exclusive custodianship of their VAT collections to avoid chaos. He stressed the importance of coordination and collaboration in VAT collection.
In conclusion, the committee emphasized the need for VAT reform to align with the economic landscape and ensure equitable distribution of revenue among tiers of government while mitigating the impact on consumers and businesses.
