The Value Added Tax is a consumption tax levied on the supply of goods and services and is charged at 7.5 per cent of the tax base. The Value Added Tax Act (2007) empowers the Federal Inland Revenue Service as its administrative body.
The Rivers State Governor, Nyesom Wike’s recent assent to the Rivers State Value Added Tax Bill 2021 has generated varied reactions from several stakeholders, with many judging the move as a step in the right direction for true federalism in Nigeria, while others thought otherwise.
Meanwhile, there is a ‘camp’ that stands with the status quo, that is, gather revenue from all quarters, and share them according to the provisions of the Federation Accounts Allocation Committee.
Under this arrangement, even states that contribute ‘next to nothing’ to the total revenue generated across the federation still receive humongous allocations. That is not a bad idea, so long as all states are making notable efforts to grow their internally generated revenue. But, this is not the case.
As of July, FAAC had shared a total of N760.717bn from the July 2021 federation account revenue to federal, states, and local governments councils.
That leads me to the revenue sharing formula and the status of statutory allocations. Although over 80 per cent of the value-added tax is generated by Lagos State, Rivers State and the FCT, the other tates get statutory allocations from the central purse, with the revenue-generating states receiving disproportionate allocations. In the period in question, only N4.7bn out of N15bn VAT revenue generated in Rivers State was allocated to the state, while Lagos State only received N9.3bn out of N46.4bn, according to Wike.
The current revenue allocation and disbursement system has severally been criticised over the years. That is because some states do the bare minimum, yet get allocations that are much more than what they put in. Meanwhile, states generating the lion share of the national revenue get peanuts.
This is why there have been calls for autonomy of states. While it is understandable that the revenue sharing system was set up to encourage even development across all states in the country, this has created a system where most state governments rely solely on federal allocations and do not explore other means of generating revenue for their states. As a matter of fact, a public office holder in the north rightly stated that only three of the 33 states in the country would exist without support from the Federal Government. This reveals an endemic challenge within the federation structure and questions the autonomy of the state in question.
It is an aberration for states where the sale of alcohol is prohibited to be receiving allocations from the sale of such products.
Their actions could be defended from a religious or cultural standpoint. But, if you destroy alcohol in your state and still collect federal allocation got from the taxes paid by beer companies, isn’t that a case of double standards?
These factors should be considered when making allocations from the central purse. Even though these issues have an economic underpinning, they cut across fairness, legality, justice and morality.
When the Buhari administration came into office in 2015, it promised to restructure the country. Six years later, Nigerians are yet to see that promise fulfilled. The battle over VAT we are facing today could have been resolved through restructuring. There are several sides to this issue, and there may not be a consensus, at least not anytime soon. What we can manage, at best, are compromises balancing each other out.
Credit: Uyaietieno Okonnah