Akintunde Oyebode, Ekiti State Commissioner for Finance and Chair of the Forum of State Commissioners for Finance in Nigeria, has faulted the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) for not leading the conversation on the contentious tax reform bills.
Oyebode explained in an interview on Arise News on Monday that the RMAFC, as the constitutional body overseeing revenue distribution, should be vocal about its position on the bills.
“The Revenue Mobilization Allocation and Fiscal Commission should be leading this conversation because constitutionally, they are the body that speaks to revenue distribution, the indices, the methodology, etc.
“So, I think they should take a more frontal position as opposed to an ad hoc committee,” Oyebode said.
Views on Tax Reform Bills
On the tax reform bills, which have passed a second reading in the Senate, Oyebode said the country’s tax laws obviously need reform, as Nigeria is still working with tax laws inherited from the British colonial government.
- He added that the conversation should not be clouded by ethnic or primordial sentiments.
- For him, the bigger issue should be the practice of Value Added Tax (VAT) as opposed to sales or consumption tax.
“So, it’s really a sales tax, because at every layer of the transaction, everybody charges the full amount. I think the question should be, how are we going to ensure that this is actually a value-added tax, which will bring down the overall costs of the tax?” he said.
- He noted that what is practiced in Nigeria is a sales tax, but if the country switches from sales tax to VAT, even if VAT increases, as long as it is administered properly, the effect on costs will be less.
“If you also think about the exemptions, in terms of food, critical healthcare, etc., you’ll see that things that really matter in terms of improving the quality of our lives have already been exempted,” he said, adding that the exemptions in the tax reform bills are significant.
“The whole idea here is to reduce what you tax, make it more transparent, and bring more people into the tax net.
“There are lots of companies today that charge VAT to their customers but don’t remit it. So, getting that compliance level up is really the goal of this process,” he said.
- Furthermore, he expressed support for the tax reforms, particularly the proposed reduction of Companies Income Tax (CIT) from 30 percent to 25 percent.
- According to him, a CIT reduction makes Nigeria a more attractive tax jurisdiction because the country does not exist in isolation.
He said, “Nigeria is a big country, an attractive place that is competing for capital with many other jurisdictions. This requires the country’s regulators to provide a level playing field so that investors will come in.”
“It (CIT reduction) just makes Nigeria a more attractive tax jurisdiction. So, I think there’s an offset here, where you’re saying, we’re going to take CIT down, we’re going to take VAT up, but we’re going to make sure it’s a value-added tax and not a sales tax. So, I think on a net-effect basis, it’s obviously positive.”
- However, he acknowledged that there are trust deficits surrounding the tax reform bills and some gaps in the engagement process.
He added that the Presidential Committee on Fiscal Policy and Tax Reforms could have done more to expose the draft bills to various stakeholder groups, such as the Governors’ Forum, Commissioners’ Forum, and the Joint Tax Board—particularly those affected by one of the bills—before the bills went to the National Assembly for consideration.
He said that this is the only gap in the engagement process.
What You Should Know
The new tax bills under consideration in the National Assembly propose adopting a derivation principle in the allocation of VAT revenues between the federal government and sub-national entities.
- These proposals have sparked controversy, with northern elites openly rejecting them, arguing that the changes may not favor their region.
- Under the current Section 40 of the VAT Act, VAT revenue is allocated as follows: 15% to the Federal Government, 50% to the States and Federal Capital Territory (FCT), and 35% to Local Governments. The allocation to states and local governments incorporates a derivation principle of at least 20%.
- Although not explicitly detailed in the VAT Act, other factors influencing the distribution include 50% based on equality and 30% based on population.
Additionally, 4% of collections are allocated to the Federal Inland Revenue Service (FIRS) as a collection fee, while 2% goes to the Nigeria Customs Service (NCS) for import VAT.
