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North is not only region kicking against tax bills — Prof. Dogarawa

feel the government needs to look into. And members of the National Assembly need to be very careful about this because we believe it is ill-timed. This is really not the right time to increase VAT or anything about taxation. People are suffering, so it is not good to increase VAT.

The second aspect is the distribution of VAT proceeds. Section 77 of the second bill has raised a lot of dust; that is the Nigeria Tax Administration Bill. This section is on distribution of proceeds. In the current regime, distribution is contained in section 40 of the VAT Act 2007, which provides for how the revenue will be distributed. According to the section, after collection, the total amount or revenue generated from VAT is distributed, both vertically and horizontally- vertically, across the three tiers of government, and horizontally, between the last two tiers.

Starting with vertical distribution, when VAT is collected, it is subjected to 4 per cent deduction, which is given to the Federal Inland Revenue Service (FIRS) as cost of collection, and another 2 per cent to the Nigeria Customs Service (NCS) in-lieu of VAT on import duties, the remaining 94 per cent is reconverted into 100 per cent and shared vertically among the three tiers of government. The federal government takes 15 per cent, state governments and the Federal Capital Territory (FCT) take 50 per cent and local governments take 35 per cent. The share of states and the FCT, as well as that of local governments, is further subjected to another horizontal distribution. And the way they do it currently is that the 50 per cent that belongs to the government is converted into 100 per cent again and shared on 50 per cent equality basis, meaning that each state will get the same amount irrespective of population, generation efforts and how much VAT was collected from the state. Also, 30 per cent is distributed on the basis of population, then 20 per cent is reserved for derivation, which is really the main problem because in the act, derivation was not really defined. It is common to see laws or acts having interpretation sections towards the end. Yes, VAT act has an interpretation section but derivation was conspicuously missing.

Now, state governors are complaining because as it stands, Lagos, Ogun and Rives are the main beneficiaries of the 20 per cent derivation. The interpretation of derivation as per the current practice is that companies that file their returns on VAT, wherever their location or registered office, the state will be credited with that amount. Now, almost 85 per cent, if not more, of all the corporate headquarters we have, or businesses, are located in Lagos State, followed by Ogun and Rivers. Kano State has very few. So, it means that these three states are the ones taking the lion share; and Kano is taking less than one per cent, while Lagos is taking up to 80 per cent, if not more, followed by Ogun State, then Rivers because the definition of derivation has not been provided for in the act under the interpretation section.


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2 months ago

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