The former Executive Chairman of the Federal Inland Revenue Service FIRS, Muhammad Nami, has explained why President Bola Ahmed Tinubu’s tax reform bills are favourable to all states in Nigeria.
Nami disclosed this on Monday through his official Facebook account, expressing his opinion on the bills.
This comes as the tax reform bills are currently being considered by the National Assembly amid controversies.
DAILY POST recalls that on October 3, 2024, President Tinubu passed four tax reform bills, including the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill to the National Assembly.
However, the bills have faced stiff opposition from the Northern Governors Forum and the National Economic Council, among others, over the proposed value-added tax derivation model.
Providing further clarity to the debate, Nami said the Tax Administration Bill emphasises fairness and more equitable distribution of VAT returns.
According to him, the new rule will ensure that places where consumption took place get 60 per cent of the amounts reported for them.
He said this means that the outcome of the proposed bills will be more favourable for most states when compared to the current regime that favours Lagos, Rivers, and the Federal Capital Territory.
He therefore appealed to NEC, NGF, and other stakeholders to accept the bills on the basis that it would bring wealth redistribution in the country.
“The present controversy is based on the VAT sharing formula proposed in Section 77 of the Nigeria Tax Administration Bill. I have come to appreciate that the myriad of criticisms against this well-intended bill may be as a result of the lack of clarity or understanding of Section 22 (12) of the bill, which provides for the attribution of VAT revenue, requiring companies to file their returns on the basis of derivation by location (place of consumption).
“This provision, from my understanding, was included to cure an existing problem with our current VAT administration. As it stands today, in the existing system, VAT returns by companies are not filed on the basis of the place of consumption but reported based on the head office locations of these companies. This means that a whopping 20% of VAT returns are distributed back to states where these head offices are located—whether consumption took place there or not; it explains why Lagos, FCT, and Rivers always take the largest chunk of VAT under the current regime.
“The proposed amendments of the Nigeria Tax Administration Bill offer a different position that emphasises fairness and more equitable distribution of VAT returns. It proposes that VAT will now be reported based on the place of consumption, which will ensure that most of the amounts currently reported for Lagos, FCT, and Rivers states will now be reported by where the consumption takes place.
“The new rule will ensure that places where consumption took place get 60% of the amounts reported for them. For instance, if consumption happens in Niger State, the state would receive 60% of the VAT generated from its jurisdiction, while the balance would be put in a VAT sharing pool, which it (Niger State) would further benefit from.
“In my view, this will result in a more favourable outcome for most states when compared to the current regime that favours Lagos, Rivers, and FCT. It will more or less redistribute most of the present allocation received by those three states.”
DAILY POST reported earlier that Nigerian economists backed the bills on the ground that they will boost the country’s revenue generation and broaden the tax base.
Tinubu’s tax reforms favourable to all states — Former FIRS Chairman Nami
