“Tax Reforms Explained: How Lagos Loses Out in VAT Redistribution — Oyedele”

The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has highlighted Lagos State as the primary loser in the ongoing tax reform efforts.

Speaking during a live appearance on Arise TV, Oyedele discussed the tax reforms introduced by President Bola Tinubu, aimed at overhauling Nigeria’s tax system. According to Tribune Online, the President proposed four Tax Reform Bills in October 2024: the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill. These bills aim to consolidate existing tax laws, simplify tax administration, and boost revenue generation.

Despite these goals, the reforms have encountered strong resistance, particularly from stakeholders in Northern Nigeria.

Oyedele explained that the committee’s proposals on Value Added Tax (VAT) were designed to ensure equitable benefits across all regions. He pointed out a historical gap, noting that VAT was not explicitly addressed in the 1979 Constitution and remained unaddressed when the 1999 Constitution was enacted. States like Lagos and Rivers have since argued in court that VAT should be collected at the state level, claiming this approach would better reflect their contributions.

However, Oyedele cautioned that state-level VAT collection would lead to significant challenges for businesses, describing it as equivalent to a “100% derivation” model. He warned, “If we allow states to start collecting VAT in Nigeria, it will create chaos for businesses, as states are unlikely to respect input-output mechanisms.”

He further explained that Lagos stands to lose the most under the proposed reforms due to the current VAT remittance structure. Presently, most companies headquartered in Lagos remit their VAT there because their finance departments are centralised. Under the new reforms, VAT collection would be redistributed to address regional disparities, effectively reducing Lagos State’s revenue share despite its substantial contributions.

“Often, companies like MTN, BUA, Dangote, Airtel, and most banks, which are headquartered in Lagos, remit their VAT from their head offices. Similarly, many oil companies headquartered in Rivers State follow the same practice,” Oyedele added.