Nigeria?s distribution of value added tax (VAT) has become an issue of national discourse lately, especially as the federal government seeks to review how it is shared among states.

In seeking a fair and equitable distribution, it has become imperative to first understand what each state contributes to the nation?s VAT pool.

BusinessDay?s analysis shows that Lagos made the highest contribution to the VAT pool in the first 10 months of 2024. It contributed N2.21 trillion but received a total of N371.09 billion as share of VAT revenue disbursed by the Federal Account Allocation Committee (FAAC) in the period (January to October).

The FAAC disbursement represents only 16.79 percent of the state?s contribution in the period under review.

This is followed by Rivers State, whose total contribution stood at N671.63 billion over the period. The state received N150.76 billion as its share of VAT revenue disbursed by FAAC in the same period, representing 22.45 percent of the total contribution.

Oyo State contributed N214.55 billion to the nation?s VAT pool in the period but got N93.7 billion from FAAC, representing 43.7 percent of the total contribution.

Delta State followed with a total contribution of N65.25 billion. The oil-rich state received N66.25bn as its share of FAAC disbursement in the period (101 percent of the total contribution).

Bayelsa contributed N54.59 billion but received N51.69 billion as its share of the VAT revenue, representing a 94.6 percent of total contribution made over the period.

Imo State contributed N3.33 billion but received N57. 22 billion as its VAT share. Abia contributed N6.50 billion but received N51.59 billion in the period.

Cross River State followed with a total contribution of N7.17 billion and VAT receipts of N51.97 billion.

Kebbi State followed with a total contribution of N7.46 billion and receipts of N53.94 billion.

Tax Reforms Committee Steps In

In a bid to correct this, the Presidential Committee on Fiscal Policy and Tax Reforms has proposed the tax bills to strengthen Nigeria?s tax system and address abnormalities in the system.

The bills, including the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill, which have passed second reading at the National Assembly, have stirred controversy, particularly regarding the revenue-sharing formula.

The bill seeks to change the VAT formula by reducing the federal government?s share from 15 percent to 10 percent. The bill includes a caveat that the allocation among states will factor in the derivation principle.

Commenting on the VAT revenue sharing formula, Taiwo Oyedele, chairman of the presidential committee, clarified that the reform bills prescribed that every state will get credit for the economic activities within their jurisdiction and keep the revenue generated in their domains.

The tax reform bills, according to Oyedele, will review the percentage formula for sharing VAT by the federal, state and local governments. Under the current system, the federal government receives 15 percent, states get 50 percent, while local governments take 35 percent.

However, the proposed bills would revise this formula to allocate 10 percent to the federal government, 55 percent to the states, and 35 percent to local governments.

Furthermore, 60 percent of the revenue allocated to states and local governments would be distributed based on derivation.

However, northern governors have strongly opposed the proposed changes to the revenue-sharing formula proposed in Tax Bill 2024, saying it does not align with their region?s interest.

Babagana Zulum, Borno State governor, in an interview with BBC Hausa on Friday, warned that the bills could have devastating consequences for the northern region and other parts of the country.

?We condemn these bills sent to the National Assembly. They will drag the North backward and also affect the South East, South South, and some South Western states like Oyo, Osun, Ekiti, and Ondo.

?If these bills pass, we won?t even be able to pay salaries. And if we do, it won?t be sustainable the following year.

?We are against it, and even Lagos State is against it. If this bill is dragging regions backward, why won?t they rescind it? Our National Assembly members, including some from the South, are not in support of it.

?This is our position, and it doesn?t mean we are against the government. We supported and voted for President Tinubu. But these bills will not be beneficial to us,? he said.

An analysis of VAT collection and distribution on a regional basis shows that states in the South-West region contributed N2.499 trillion to the nation?s VAT pool but received N685.91 billion.

The South-South region contributed N887.57 billion but received N441.78 billion.

The North-West region contributed N161.75 billion but received N463.86 billion as its share of VAT revenue. The North-East region contributed N148.16 billion to the total VAT pool but received N334.43 billion.

The North-Central region contributed N127.40 billion but got N331.30 billion.

The South-East region contributed N84.94 billion to the VAT pool but received N286.89 billion. (BusinessDay)

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