A VAT OF CONTROVERSY
The Special Adviser to the President on Information and Strategy, Bayo Onanuga engaged somewhat in gobbledygook as he hastily took on opposition to President Bola Tinubu’s Tax Reform Bills recently sent to the National Assembly for consideration and passage. Deploying sophistry, semantics and – yes, sentiments – he sought to repel genuine concerns over some of the provisions in some of the bills.
The first controversy to surface – and many more are sure to follow – is the proposal, in the Nigeria Tax Bill to introduce a new “derivation-based model of Value Added Tax distribution.” It’s an act of deception to so describe the proposal because, as a matter of fact, the extant formula for distributing VAT revenues between states has “derivation” entrenched in it. The amount accruing to states is shared as follows – derivation 20%, equality of states and population – each 40%. The proposed new formula has 60% for derivation, 20% each for equality of states and population.
The 20% originally reserved for derivation is a nod to claims by states like Lagos and Rivers that they “generate” VAT. They don’t; they are collection centres because many manufacturers have their headquarters in these states. Europe’s efficient tax administration systems and wired retail trade enable the collection of VAT payment at the point of (consumer) purchase.
Nigeria’s chaotic retail trade chain permits no such operation. FIRS therefore co-opted manufacturers into collecting VAT on its behalf, at factory gates so to speak. Whatever manufacturers remit as VAT collection is recouped through higher prices to wholesalers and, ultimately retailers.
Left unacknowledged in the claims of Lagos and its cohorts are the revenues they garner from hosting manufacturing concerns, such as employee income tax and (state) taxes imposed on the enterprises.
It’s difficult to see the logic behind the basing of the new formula on “where the goods and services are supplied or consumed.” The former is well-known, but it’s the latter that is more important in the matter of Value Added Tax. A cargo of cement leaving the Lafarge Cement WAPCO factory can end up anywhere between Shagamu and Shendam – Waybill details notwithstanding.
THISDAY’s view that there is no “sectional undertone” to the bills is not shared by many and is contradicted by shrill talk about “fairness” and “inherent iniquity” in the current sharing model. VAT is not a resource in the ordinary meaning of the word; in this country how its proceeds are distributed is political, not accounting or tax issue. Resource control is being introduced edgewise.
Though the Nigeria Revenue Service promises benefits of streamlined tax laws, collaboration and coordination between tax agencies, the baggage of a behemoth of an agency is cause for caution. State revenue agencies shouldn’t be under supervision but allowed to operate independently under the uniform tax laws. The Federal Inland Revenue Service has done well as revenue collector for both the federal government and the federation itself. Many of the government agencies that collect varied taxes do so as an integral part of executing their mandates. A National Revenue Service is unlikely to do better than the FIRS; a more likely outcome is the emergence of a Tax Czar with untrammelled powers.
Reforms offered by the Tinubu administration shouldn’t be on a take-it-or -leave-it basis; they should have been thoroughly discussed behind closed doors before public unveiling.
Mohammed Tukur Usman, aboumahmud@yahoo.com
