The Federal Government, is implementing a major change in its tax policy as it introduces a consumption-oriented Value Added Tax (VAT) through the proposed Tax Reform Bill.
This effort seeks to address persistent disparities in revenue allocation among the states, which could significantly impact the country’s economic environment.
During a recent session of the House of Representatives, Dr. Zacch Adedeji, Executive Chairman of the Federal Inland Revenue Service (FIRS), outlined the government’s perspective by stating, “VAT is a consumption tax. Its revenue should represent the areas where goods and services are consumed, rather than where the sales occur.”
This indicates a shift from the existing system, which sees states such as Lagos, Rivers, and the Federal Capital Territory contributing unevenly to VAT collections, contributing 42%, 16%, and 9% of the national revenue, respectively.
The new model will prioritize revenue distribution based on population consumption instead of concentrating it in industrialized areas. This adjustment aims to direct funds to less developed states like Borno and Bauchi, which currently receive under 0.5% of VAT revenue. Arabinrin Aderonke Atoyebi, a media aide to Dr. Adedeji, expressed confidence in the potential of this reform. She noted,
“This change could allow these regions to invest in essential domains such as healthcare, education, and infrastructure.” Supporters believe that a fairer resource allocation will strengthen national unity and promote sustainable economic growth in all areas.
However, the proposal has faced opposition from states that currently gain the most from VAT revenues. Officials from Lagos and Rivers have expressed worries about potential budget limitations, cautioning that the reform might impede crucial projects and affect public services. Detractors are concerned that redistributing VAT revenue based on consumption trends could create deficits in areas that have traditionally supported important national programs.
Despite facing resistance, Dr. Adedeji continues to strongly endorse the reform, linking it to President Tinubu’s Renewed Hope Agenda. He stated, “This initiative aims to build a nation where every region can prosper.”
The suggested VAT framework, although contentious, highlights the federal government’s dedication to promoting economic inclusivity and tackling regional inequalities, marking a significant step towards a more equitable and cohesive Nigeria.
