At the end of a meeting Monday by governors of Nigeria’s Northern states, where the contentious Value Added Tax (VAT), rotational presidency and other issues were focal, it appeared the group may have mistaken the VAT for sales tax.
While a communiqué following the meeting claimed Southern governors agitating to administer VAT were confusing it for sales tax, BusinessDay findings show that sales tax was what transformed into VAT in 1993.
“VAT is being confused by these state governments as a sales tax,” said Simon Lalong, chairman, Northern Governors’ Forum, in reference to increasing agitations and some legislations by Southern Governors to control VAT administration.
“If every state enacted their own VAT law, multiple taxations will result in the increase of prices of goods and services and collapse inter-state trade. VAT is not a production tax like excise terminal tax, which is paid by the ultimate consumer,” he further said.
However, the antecedents of VAT in Nigeria indicate that it was formerly the Sales Tax administered by states, which was transformed into VAT in 1993. In essence, sales tax stopped to exist following the commencement of VAT.
Read also: VAT dispute is constitutional, not capacity of states to collect
According to the VAT Tax of 1993, “The tax shall be charged and payable on the supply of all goods and services (in this Act referred to as “taxable goods and services”) other than goods and services listed in the first schedule to this Act.”
Emmanuel Ijewere, who was chairman of the committee that established VAT in Nigeria, had said in an interview that it was a recommendation by the World Bank when it was observed that a lot of the states were not financially viable but could raise a lot of capital as tax from their own bases.
“They recommended that Nigeria should replace sales tax with value added tax,” he said, subsequently, leading a 28-man team he called ‘modified value added tax committee.’
“The salient point is first and foremost, VAT was the replacement of sales tax, which was conceived by the states, and therefore that revenue was meant for the states,” he emphasised.
According to Ijewere, the thinking was to create competition between states, so that they can do well and improve on their collection capacity.
However, while his committee recommended every state retain 95 percent of whatever was collected and 5 percent goes to the collection body, it was not followed.
What emanated is the current sharing formula, which sees states getting 50 percent, local governments 35 percent and the Federal Government, 15 percent.
The sharing of the portion that accrues to states has in particular been contentious; with some state governments alleging that what they get following monthly disbursements is lower than what they contribute to the national pool.
It would be recalled that a communiqué issued following an earlier meeting by Southern governors had indicated support for states collection of VAT, stating, “The meeting resolved to support the position that the collection of VAT falls within the powers of the states.”
