The debate surrounding Nigeria’s Value Added Tax (VAT) sharing formula has deepened following the recent clarification by Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee. In a press statement, Oyedele responded to the Revenue Mobilisation Allocation and Fiscal Commission’s (RMAFC) position on the proposed VAT distribution formula, emphasizing the need for constructive dialogue and context-driven reform.
Oyedele expressed support for the four tax reform bills currently before the National Assembly, stating that the reforms aim to “set our country on an inclusive growth trajectory for the benefit of all Nigerians.” He, however, sought to address misconceptions about VAT and its distribution formula, which has been a contentious issue for decades.
“VAT remains a state tax, even though it is centrally collected for efficiency and to manage its multi-layered nature,” he noted, adding that 85% of VAT revenue is distributed to states while the federal government retains only 15%. This arrangement reflects an understanding among tiers of government, though Oyedele pointed out that VAT predates the 1999 Constitution and is not explicitly mentioned within it.
The committee chairman highlighted the key issues driving the proposed reforms. According to him, the pending Supreme Court case filed by Lagos and Rivers states, which seeks to establish VAT as a state-administered tax, underscores the perceived inequities in the current distribution model. “If the case succeeds, states will lose the opportunity to share VAT revenue among themselves, as any revenue generated by each state will be retained 100%,” he explained.
Oyedele also warned of potential challenges if VAT administration is decentralized, noting that such a move could result in a significant revenue loss of over 50% for states. “States will face collection challenges reminiscent of the old sales tax regime, while commerce, interstate trade, and inflation will also suffer,” he stated.
Responding to RMAFC’s views, Oyedele called for a deeper understanding of VAT mechanics, particularly regarding consumption attribution. He refuted claims that VAT consumption must be linked to taxpayer residence, explaining, “VAT has an inbuilt mechanism for input and output tracking. It is unnecessary and impractical to tag collections to end-user locations.”
Oyedele also clarified that the horizontal distribution of VAT revenue among states is based on 20% derivation, 50% equality, and 30% population—not the 50%-35%-15% formula suggested by RMAFC.
While acknowledging RMAFC’s contributions, Oyedele urged the commission to prioritize collaboration with stakeholders in resolving VAT-related disputes. “This moment calls for a constructive and objective approach. We must focus on finding a workable solution and avoid further controversies,” he concluded.
