Presidential Tax Committee seeks 90% VAT revenue share for States

Olaolu Bilau, Abuja

The Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) is considering changing the Value Added Tax (VAT) sharing formula between the Federal and State governments.

Chairman of the Committee, Mr. Taiwo Oyedele disclosed this on Monday in Abuja at an Exposure and Impact Assessment Session organised by the Committee.

VAT revenue is distributed to the three levels of government via the Federation Accounts Allocation Committee (FAAC), with the Federal Government receiving 15%, States 50%, and Local Governments 35%.

According to Oyedele, the proposed tax structure would provide states 90% of VAT income and the Federal Government 10% with the FG having the sole constitutional authority to collect VAT in the country. He added that by this arrangement, VAT would be moved to the Exclusive Legislative List.

To improve tax collection in the country, the Committee has also proposed the establishment of the Nigeria Revenue Service (NRS) to replace the Federal Inland Revenue Service (FIRS). The proposal seeks to merge the Nigeria Customs Service (NCS) and States Inland Revenue Services into the NRS.

On the Federal Inland Revenue Service (FIRS) and Nigeria Customs revenue collection costs, Mr. Oyedele said the committee had recommended the reduction of revenue collection costs to one per cent or less.

The Federal Inland Revenue Service (FIRS) currently receives 7% of non-oil tax payments while the Nigeria Customs Service (NCS) deducts approximately 4% as revenue collection costs. Oyedele said these expenditures were excessive in comparison to countries such as South Africa, which generated far larger taxes at lower collection costs.

Oyedele said, “We are targeting 1% here. It ranges from 4% to 35% at present.”

He also stated that the committee’s draft regulations intends to remove food, education, health, and security spending from Value Added Tax (VAT) because they impacted vulnerable Nigerians who lacked the capacity to comply, and the sectors remained critical indices for poverty evaluation.

The committee, however, recommended for an increase in consumption tax because the proposed exemptions were likely to result in a 60% loss in revenue.

The Presidential Fiscal Policy and Tax Reforms Committee was inaugurated by President Bola Ahmed Tinubu on August 8 2023. It is tasked with the mandate of addressing critical challenges in fiscal governance, revenue transformation
and economic growth facilitation.