Why We Must Address Inherent Injustice in Present VAT Regime – FIRS Boss
The Chairman of the Federal Inland Revenue Service (FIRS), Dr. Zacch Adedeji, has described the allocation of 70% of value-added tax (VAT) proceeds to Lagos, Rivers, and the Federal Capital Territory (FCT) as unfair to the remaining 34 states.
Speaking during an interactive session with members of the House of Representatives on the proposed tax reform bills, Adedeji revealed that he signed off 42% of October VAT proceeds to Lagos State last Friday.
Addressing the concerns of northern lawmakers about potential disadvantages for their states under the proposed tax reforms, Adedeji argued that the existing VAT distribution structure does not serve Nigeria’s best interests.
He noted that the current framework allows Lagos (42%), Rivers (16%), Oyo (5.2%), and the FCT (10%) to take over 70% of VAT proceeds, primarily because the head offices of many revenue-generating companies are located in these regions.
Adedeji criticized the arrangement, pointing out that 70% of Nigerians who consume the products and services provided by these companies are spread across the country.
To illustrate, he cited the example of a major mobile telecommunications network, MTN, which contributes the highest VAT to Lagos despite its services being consumed nationwide.
“What the bill seeks to correct is that the existing structure does not represent the interest of either the President or the nation,” Adedeji said.
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“Today, I just signed the data on VAT for October. Lagos will take 42% of the VAT, Rivers will take 16%, Oyo State will take 5.2%, and the FCT will take 10%. Go and check; these three states are taking more than 70%. Why? Because those are the places where the head offices of those companies are.
“As we know, 70% of consumption is not accruing to those three states. So, whatever way you look at it, apart from Lagos, Rivers, and FCT, every northern state would benefit. That is the Bill being presented.
“If you look at it, MTN contributed the highest, but because MTN’s head office is in Lagos, all derivation from MTN is accruing to Lagos. With this Bill, irrespective of the economic situation of any state in Nigeria, all states would benefit.”
Adedeji expressed concern over the disparity, noting that states like Borno and Bauchi collect only 0.32% and 0.4% of VAT proceeds, respectively, compared to Lagos’ 42%.
“Any day I sign it, I don’t feel like I am a Nigerian because this is not what we represent in our prayer as a nation. That is why, in the wisdom of Mr. President, we need to change this structure,” he stated.
The FIRS boss assured lawmakers that the proposed tax reform bills would ensure a fair distribution of VAT proceeds based on consumption.
His remarks were met with applause from lawmakers, although conflicting opinions emerged during the session. Babajimi Benson (APC, Lagos) and Adamu Yusuf Gagdi (APC, Plateau) expressed concerns about the impact of the reforms on their respective states.
Gagdi questioned how conflict-displaced citizens in the North could benefit from VAT proceeds tied to consumption and other import-related taxes. Adedeji reiterated the necessity of the reforms, calling for fairness in the distribution of resources across the federation.
