NASS must pass tax reform bills to correct VAT anomalies- ex-FIRS chairman

Amidst the growing controversy over President Bola Tinubu’s tax reforms, Muhammad Nami, former chairman of the Federal Island Revenue Service (FIRS), says the National Assembly must pass the tax bills to end anomalies in the administration of Value Added Tax (VAT).

Nami traced the current VAT controversy to misunderstanding of the VAT sharing formula as proposed in Section 77 of the Nigeria Tax Administration Bill.

“I have come to appreciate that the myriad of criticisms against this well-intended bill may be a result of the lack of clarity or understanding of Section 22 (12) of the bill, which provides for attribution of VAT revenue, requiring companies to file their returns on the basis of derivation by location (place of consumption).

“This provision, from my understanding, was included to cure an existing problem with our current VAT administration.

“As it stands today, in the existing system, VAT returns by companies are not filed on the basis of the place of consumption but reported based on the head office locations of these companies.”

This means that a whopping 20 percent of VAT returns are distributed back to states where these head offices are located —whether consumption took place there or not.

This, according to him, explains why Lagos, FCT and Rivers always take the largest chunk of VAT under the current regime.

“The proposed amendments of the Nigeria Tax Administration Bill offer a different position that emphasises fairness and more equitable distribution of VAT returns.

On the other hand, the new Tax Administration Bill proposes that VAT will now be reported based on the place of consumption, which will ensure that most of the amounts currently reported for Lagos, FCT and Rivers states will now be reported by where the consumption takes place.

“The new rule will ensure that places where consumption took place get 60 percent of the amounts reported for them.

For instance, if consumption happens in Niger State, the state would receive 60 percent of the VAT generated from its jurisdiction, while the balance would be put in a VAT sharing pool, which it (Niger State) would further benefit from.

“In my view, this will result in a more favourable outcome for most states when compared to the current regime that favours Lagos, Rivers and FCT. It will more or less redistribute most of the present allocation received by those 3 states.”

Nami appealed to governors and the Northern Elders Forum NEF as well as other stakeholders not to “throw away the baby with the bathing water.”

” We must not make the misjudgment of throwing away the baby with the bathing water.

“Let us carefully look at the benefits of these reforms and weigh the impact on our tax and fiscal space versus the proposed amendments’ perceived shortfalls.”