Unpopular Opinion: Lagos & Rivers VAT collection laws will not solve the injustice/problem that we seek to eliminate, but may create more problems, complexities & further complicate the ease of doing business. VAT problem is a distribution issue, not a collection issue. Thread
What do I mean? VAT as currently administered in Nigeria is collected solely by FIRS & distributed amongst the 3tiers – 15% FG, 50% states & 35% to LGAs. [/b]Now out of total VAT generated, half is generated from VAT on foreign transactions, while about 65% of local is from Lagos.
Now[b] some of Lagos’ VAT are from transactions nationwide but reported by their Lagos HQs. The basis of sharing among states is only 20% based on contribution, 50% equality & 30% population- wherein lies injustice. because states like Kano may receive more regardless of contribution
Now, the solution is to prioritize contribution as the major or only basis of distribution. This can be achieved irrespective of who collects. Eg FIRS can collect but distribute based on contribution, such that 80% of a state’s generated VAT goes to that state, & 20% to their LGA
While VAT on foreign transactions get shared equally among states. Though the constitution is currently silent on who can collect VAT & Rivers/Lagos laws are effectively the only laws in Nigeria that codifies a collector of VAT, I do not think the state laws are well thought out
Because it does not properly define the confusion that will arise from inter-state transactions, or e-commerce transactions where goods are sold in lagos but consumed in Yola, with both states having different rates, or the difference in Lagos’ 6% & FG’s 7.5% etc.
It also means that businesses with national coverage will now have to deal with multiple agencies for VAT (possibly as high as 37 for companies like telcos), as against one. And this ofcourse further compounds ease of doing business.
However, the good thing about what Rivers & Lagos are doing is that it is forcing us to have conversations on fiscal restructuring (VAT logic also applies to oil), constitutional gaps & need for amendment. However, the manner in which it is being done is a bit too hasty & tacky.
This is because as usual, it has become an emotional debate underpinned on North/South dichotomy rather than rigorous workable analysis that factors our realities. As I’ve always said, regional/tribal sensationalism is the biggest obstacle to socioeconomic progress in Nigeria
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