Firstly, Mr Oyedele claimed that that ..."the VAT on Imports and International Services is actually more than the VAT we collected in Nigeria, within our jurisdiction".

However, data from NBS on VAT from Q1 2022 to Q2 2024 reveals that VAT collected locally dominates;

1. Local collection:            N5.035 trn (55.07%)

2. International Services: N2.167 trn (23.70%)

3. Imports VAT:                   N1.941 trn (21.23%)

Secondly, Mr Oyedele asserted that the amount collected from International Services and Imports  VAT is not attributed to any State, it goes to the pool and is shared.

But, the fact is that net collection from Nigeria Custom Service (NCS) and Federal Inland Revenue Service (FIRS) and after deduction to North East Development Commission (NEDC), is pooled together and shared vertically in proportion 50%, 35% and 15% to the States, the Federal Government and the Local Governments respectively. The 50% allocated to States is shared horizontally using a formular 50%, 30% and 20% based on equality, population and derivation respectively. Thus the collection from International Services and Imports are shared according to the same formular. Impliedly, Lagos State has been receiving the largest share of International Services and Imports VAT in the name of derivation. What a Scam!

Thirdly, he argued that the law guarantees that no State will collect any thing less than what it would have collected under the old formular.

This is indeed, the trickiest part of it all. Ofcourse, no State will receive less but, for two possible reasons not because of the proposed sharing formular. The two reasons are:

i. Increase in the VAT rate from 7.5% to 10%; this is likely to increase the total collection from arround N550bn monthly to between N700bn to N900bn. This will mean that States will receive at least what they have been receiving under the current arrangement. .

II. The 5% fiscal equalization is an addition from the share of Federal Government. It is meant to serve as a buffer.

While these two reasons can guarantee the fact that States will not receive less under the proposed formular, it also mean that Lagos State can receive  more than three folds of what it used to received under the extant law.

Fourthly, Mr Oydele also stated that the proposed reform intends to move away from where VAT is remited to where economic activities (actual consumption) is taking place. If this can be done with fairness, than it is ok.

It is important to understand the meaning and how Value Added Tax (VAT) is being collected. VAT is a consumption tax that is levied on the value added at each stage of a product's production and distribution. This means, if a product worth N1bn it will attracts VAT of N100m at 10%. If the same product is transported from Lagos to, say, Kano for instance, at a cost of, say, N10m. That N10m is value added to the product and will attract VAT of 10%,; that is, N1m. The total cost of the product is now N1.111bn.

As such, the question that remains unanwered is, what portion of the VAT will be attributed to the consuming States?

The total VAT paid; that is, N101m or the VAT on distribution alone which is just N1m?

It appears he meant the second option; N100m will be recorded for Lagos and N1m will be recorded for Kano. Consequently, Lagos share will be roughly 99% of the total amount and Kano roughly 1%.

Finally, it is becoming apparent that Lagos State is being soaked in to debt trap, with a total debt stock of more than N2.9trn. As such, debt service is eating up roughly 22% of its VAT share and about 26% of its total FAAC allocation. Hence, the need to improve on revenue generation. This, I think, motivate the entire reform.

However, in my opinion, the gradual increment in VAT from the current rate of 7.5% to 15% by 2030, given the prevailing economic condition,  is what Nigerians should be fighting.

Abdulrazaq Ibrahim, Ph.D.

Department of Economics

Northwest University Kano 

(formerly Yusuf Maitama Sule University)  *Copied*