We Need to Raise VAT Rate, Says Oyedele

May 8, 2024

The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has said that there is need to raise the value-added tax (VAT) rate.

He said this on Monday while announcing that the VAT revenue-sharing formula would be reviewed.

Oyedele spoke at a policy exposure and impact assessment seminar organised by the committee.

He also said the committee proposed reviewing state and local government’s portion of VAT revenue to 90 percent combined.

Section 40 of the VAT Act states that the federal government gets 15 percent of the tax revenue, states share 50 percent, and local governments share the balance of 35 percent.

However, Oyedele said the committee suggested reducing the federal government’s share by 5 percent.

He said: “We are proposing that the federal government’s portion should be reduced from 15 percent to 10 percent. States’ portion will be increased, but they would share 90 percent with local governments.”

According to Oyedele, the committee suggested changing the VAT distribution mechanism because it was a state tax.

Oyedele said: “In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 percent as the cost of collection and that is the 15 percent charged today came about. But we think it is too much.

“So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing.

“Nigeria’s economy is more than 50 percent in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50 percent and it won’t even fly.

“So we, therefore, need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services, and accommodation will carry zero percent VAT. So for the poor and small businesses, no VAT.

“We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the mathematics with the private sector.”