Tax Reform Bills: Lawyers Debate VAT Derivation Based On Consumption

Nigerian lawyers and stakeholders are actively debating the proposed Value Added Tax (VAT) reform, which seeks to derive VAT revenue based on consumption rather than the current system focused on remittance locations. The Tax Reform Bills, developed by the Presidential Fiscal Policy and Tax Reforms Committee under the leadership of Mr. Taiwo Oyedele, aim to address perceived inequities in Nigeria’s fiscal framework.

The proposed reform emphasizes allocating VAT revenue based on where goods and services are consumed, rather than where businesses remit taxes. Oyedele critiques the existing system as unjust and suggests it disadvantages states with higher consumption but fewer corporate headquarters.

The Federal Government asserts that the reforms aim to devolve fiscal powers to states and local governments, enhancing resource allocation and improving governance for citizens.

The proposed shift has generated significant controversy. Governors from Northern Nigeria, along with traditional rulers and other stakeholders, oppose the reform, arguing that it could disadvantage their region. Many lawmakers from the North echo these concerns.

Senior Advocate of Nigeria (SAN) Ahmed Raji explains that VAT, as a consumption tax, should fall under state control rather than federal oversight. He advocates for a decentralized system where states manage local VAT collection while the Federal Government handles imports and exports. He compares this to the U.S. model, where states implement their own sales tax laws, promoting healthy competition and efficient governance.

Raji also stresses the importance of collaboration and public sensitization, suggesting that town hall meetings across Nigeria’s six geopolitical zones could clarify the bill’s benefits and address concerns.

Chief Rafiu Oyeyemi Balogun, another SAN, notes that opposition to the reform reflects Nigeria’s diverse socio-economic landscape. He advises stakeholders to present well-reasoned amendments to the National Assembly during public hearings, emphasizing that outright rejection could hinder tax system improvements.

Dr. Olisa Agbakoba, SAN, supports the reform as a means of boosting revenue generation, particularly from corporate entities and wealthier classes. However, he acknowledges the North’s concern over revenue-sharing disparities and suggests addressing these issues to ensure fairness. Agbakoba calls for a broader decentralization of political and economic powers to states, which he believes is essential for equitable revenue allocation and sustainable economic growth.

As the Tax Reform Bills progress in the National Assembly, stakeholders are urged to prioritize dialogue and collaboration. The reforms aim to establish a fairer VAT distribution system while addressing regional concerns, ultimately fostering transparency and accountability in Nigeria’s tax policies.