Former FIRS chairman Muhammad Nami urges the National Assembly to pass the tax reform bills, pointing out that misunderstandings over the VAT sharing formula are fueling the controversy.
He argues that the new system, based on consumption rather than company locations, will ensure a fairer VAT distribution, benefiting states like Niger.
On VAT Reforms And Equity In Tax Distribution
As the debate over President Bola Tinubu’s tax reforms intensifies, the former chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami, has called for clarity.
He believes that for the proposed changes to succeed, the National Assembly must pass the tax bills.
He believes it will resolve the confusion surrounding the administration of Value Added Tax (VAT).
Addressing VAT Distribution Inequities Through Tax Reforms
Nami traced the VAT controversy to misunderstandings of Section 77 of the Nigeria Tax Administration Bill, particularly Section 22(12), which attributes VAT revenue to the place of consumption rather than the location of a company’s head office.
He explained that much of the criticism arose from a failure to grasp the bill’s intent.
He explained that much of the criticism stemmed from a failure to grasp the bill’s intent.
Currently, companies file VAT returns based on their head office location, which leads to distortions.
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Around 20 per cent of VAT returns are allocated to states based on company headquarters, not actual consumption.
Consequently, this practice favours states like Lagos, the Federal Capital Territory (FCT), and Rivers, where many corporate headquarters are located.
However, the new amendments aim to address this issue by reporting VAT based on where consumption occurs, ensuring a more equitable distribution.
As a result, states like Niger will receive a fairer share, with 60 per cent of VAT generated within their borders.
Therefore, Nami urged governors, the Northern Elders Forum, and other stakeholders to carefully consider the long-term benefits of the reforms.
He cautioned them against dismissing the changes without weighing their potential to improve Nigeria’s tax system and fiscal space.
Ultimately, Nami believes that passing the tax reforms is essential for addressing VAT distribution anomalies and ensuring fairness.
