Lagos projected as biggest loser of proposed VAT formula
Lagos State is set to be the biggest loser of the new value-added tax (VAT) revenue-sharing formula for Nigeria’s sub-nationals, proposed by a presidential tax advisory body.
The revelation comes from an analysis of some provisions in the new reform by Agora Policy, a civic organisation focused on proffering solutions to national issues.
The Abuja-based think tank, using a simulation based on actual VAT data for October 2024, indicated in a post on X (formerly Twitter) that Lagos, Nigeria’s main commercial hub, would have received a share of N32.2 billion based on the planned allocation template, contrary to the N39.7 billion it got for the month.
That is equivalent to a 23.3 per cent decline.
“Despite the overall increase, 14 states will be worse off while 22 states will be better off,” said Agora Policy, which uses an evidence-led and solution-driven model in analysing policy research.
The fourteen states, excluding Lagos, include Bayelsa, Rivers, Ebonyi, Nasarawa, Taraba, Adamawa, Gombe, Niger, Borno, Yobe, Jigawa, Zamfara and Sokoto.
The Nigerian Government is currently pursuing one of the most radical reforms of its tax system in decades to attain efficiency in collections, curtail evasion, make its taxation processes more investor-friendly and rid the system of obsolete laws that have hampered progress.
Four tax reform bills are under legislative scrutiny and have passed second reading at the Senate, but the push is facing pushback from some stakeholders, who feel the proposed laws have been drafted not to favour the northern region.
The region accounts for the bulk of Nigeria’s population and the largest share of Nigerians grappling with multidimensional poverty.
The amendment seeks to change the current model where the Federal Government receives 15 per cent, states 50 per cent and local governments 35 per cent of VAT revenue to 10 per cent, 55 per cent and 35 per cent respectively.
It also reviews the current sharing formula for states, which is based on 20 per cent derivation, 50 per cent equality and 30 per cent population, to 60 per cent derivation, 20 per cent equality and 20 per cent equality.
The existing model attributes derivation to the state where the VAT-paying company or entity is headquartered. However, the proposed law wants the states where the goods and services are consumed to be the beneficiaries of the VAT revenue derived from such products.
Lagos, home to most of the headquarters of big businesses in the country, has enjoyed the biggest chunk of VAT based on derivation for years, currently taking 80.3 per cent of the total VAT revenue allocated to states.
Using October data, Agora Policy anticipates states’ portion of VAT to rise to N342.3 billion N311.2 billion.
Lagos projected as biggest loser of proposed VAT formula
Lagos State is set to be the biggest loser of the new value-added tax (VAT) revenue-sharing formula for Nigeria’s sub-nationals, proposed by a presidential tax advisory body.
The revelation comes from an analysis of some provisions in the new reform by Agora Policy, a civic organisation focused on proffering solutions to national issues.
The Abuja-based think tank, using a simulation based on actual VAT data for October 2024, indicated in a post on X (formerly Twitter) that Lagos, Nigeria’s main commercial hub, would have received a share of N32.2 billion based on the planned allocation template, contrary to the N39.7 billion it got for the month.
That is equivalent to a 23.3 per cent decline.
“Despite the overall increase, 14 states will be worse off while 22 states will be better off,” said Agora Policy, which uses an evidence-led and solution-driven model in analysing policy research.
The fourteen states, excluding Lagos, include Bayelsa, Rivers, Ebonyi, Nasarawa, Taraba, Adamawa, Gombe, Niger, Borno, Yobe, Jigawa, Zamfara and Sokoto.
The Nigerian Government is currently pursuing one of the most radical reforms of its tax system in decades to attain efficiency in collections, curtail evasion, make its taxation processes more investor-friendly and rid the system of obsolete laws that have hampered progress.
Four tax reform bills are under legislative scrutiny and have passed second reading at the Senate, but the push is facing pushback from some stakeholders, who feel the proposed laws have been drafted not to favour the northern region.
The region accounts for the bulk of Nigeria’s population and the largest share of Nigerians grappling with multidimensional poverty.
The amendment seeks to change the current model where the Federal Government receives 15 per cent, states 50 per cent and local governments 35 per cent of VAT revenue to 10 per cent, 55 per cent and 35 per cent respectively.
It also reviews the current sharing formula for states, which is based on 20 per cent derivation, 50 per cent equality and 30 per cent population, to 60 per cent derivation, 20 per cent equality and 20 per cent equality.
The existing model attributes derivation to the state where the VAT-paying company or entity is headquartered. However, the proposed law wants the states where the goods and services are consumed to be the beneficiaries of the VAT revenue derived from such products.
Lagos, home to most of the headquarters of big businesses in the country, has enjoyed the biggest chunk of VAT based on derivation for years, currently taking 80.3 per cent of the total VAT revenue allocated to states.
Using October data, Agora Policy anticipates states’ portion of VAT to rise to N342.3 billion N311.2 billion.
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