Tax Reform Bill: Attribution before Derivation

I have been studying this tax reform bill for sometime now but my worry is heightening by the day. The truth is that Tinubu’s tax experts who worked on the bill has inputed so much into the bill which will put Lagos and Ogun into economic advantage thereby short changing and extorting

other states . And our governors and legislators have not set up tax study groups or even hire Global tax experts to look into this.

Let us take VAT as example. VAT is the tax charged on consumption of goods and services. By the reform bills, 60% of the VAT will go to the state of collection. This sounds attractive right? But see where the problem is. I will use First bank and MTN as case studies.

First bank: The registered address of first bank in CAC or FIRS is 35 Marina Lagos. However first bank has 15 branches in Anambra state where I reside. In the course of rendering bank services, First bank collects VAT from its branches. But the way it is right now, the VAT collected from the 15 branches of first bank in Anambra is credited to Lagos because it is the registered office of first bank. Thus, if First bank collects N500m as VAT from Anambra, 60% of it under derivation will go to Lagos. And this is replicated in the other states in Nigeria.

MTN has its registered office in Lagos. But as at 2021, it had about 3m voice subscription in Anambra. MTN collects VAT from the telecom services rendered to about 3m subscribers in Anambra on daily basis. Let’s say it collects N700m monthly from Anambra subscribers, MTN credits this amount it collects to Lagos state. And by the reform bill, Lagos will collect 60% of it.

Now apply the principle to all the banks, breweries and mineral water bottling companies. You should be able to understand what the tax reform bill plans to do.

Any solution? Yes! The proper thing as it is done everywhere in the world and should be done in Nigeria is what we call tax attribution to the area of collection. It is after tax attribution, you now talk of derivation. Using the above scenarios of First bank and MTN, the VAT collected by FIRS from the 15 branches of first bank in Anambra will be credited to Anambra state account with FIRS. That is tax attribution to area of consumption. Also, the VAT collected by MTN from the 3m subscribers in Anambra will be credited to the Anambra account with FIRS. And by the new bill, 60% of collections from MTN and first bank in Anambra will now be given to Anambra by way of attribution. This principle should be applied in all the states of the federation.

This is what we mean by tax attribution to the area collected before derivation. The tax reform bill must include proper attribution of tax to areas of collection before derivation or else, it will become extortion.

The publication of the dangers of this tax reform bill has been on for days and this is my take/opinion.

Our legislators and Governors who have been given enough notice should act very fast to do something about it rather than ignoring it, because this might turn out to be the heist of the century!

– Chris Okafor