ChannelsTV, on Monday 2nd December 2024, held a Town Hall session on the Tax Reform Bills during which Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy & Tax Reforms presented a simulation of the proposed VAT sharing formula to the public for the first time (at least to the best of my knowledge).
MTN Nigeria Communications Plc was used as a hypothetical case study for the simulation to highlight the difference between the current sharing formula based on the Remittance Model of Derivation which has the headquarters effect and the proposed sharing formula based on the Consumption Model of Derivation in the Tax Reform Bills.
It is a fact that companies currently remit VAT based on the location of their headquarters even though internally many of them have information about consumption activities in each state.
However, since the current VAT remittance model has never required location specific information, a number of companies may just need to start paying attention to their internal database for that purpose in preparation for the proposed VAT regime if it takes effect.
Perhaps that is why the information to showcase a comparison of the current and proposed models using a specific month on a complete basis may not be readily available and/or CREDIBLE at this point.
If that is the case as is likely so, then at least it is better to simulate using hypothetical data than not having any data to explain the impact of the proposed model.
The key point of misconception by Governors and a number of other stakeholders is the proposal to increase the percentage shared based on derivation from 20% to 60%!
The erroneous understanding is that the proposed 60% would still be based on the current Remittance Model of Derivation with the headquarters effect. Meanwhile, the proposal is 60% based on the Consumption Model of Derivation!
Before the referenced Town Hall session, the simulation was not in the public domain and even after the session, it hasn’t really circulated.
Most stakeholders (Governors, Lawmakers and other members of the public) would have better clarity with the visual illustration using data (albeit hypothetical), thereby making discussions more constructive.
There might not have been this level of opposition and distrust driven by misinformation if such an illustration comparing current and proposed scenarios had been readily available.
Something simple but crucial like the simulation might hopefully douse tension on the VAT issue with more clarity and better understanding by stakeholders. This would allow appreciation of other aspects of the Tax Reform Bills which have been obfuscated by the intense VAT debate.
The simulation should be circulated as widely as possible and used as the basis of engagement at different forums going forward.
This article is contributed by Hafiz Bakare a Consultant and Former Bank Chief Executive.
