The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has supported Nigeria’s tax reforms but raised concerns about the proposed VAT distribution formula. Lagos, as the country’s commercial centre, generates a large portion of VAT due to its high business activity.
Smaller states like Ekiti or Yobe, however, contribute far less. This disparity has led Lagos to argue that it should keep all VAT generated within its borders, as it produces most of the revenue.
Introduced in 1993, VAT replaced the sales tax, which was previously administered by states. Though VAT is centrally collected, it is considered a state tax. Under the current system, 85% of VAT revenue goes to states, with the federal government retaining 15%. Lagos argues that a more equitable formula should allow it to keep more of the revenue it generates, which has sparked ongoing debates.
While Lagos stands to benefit from keeping all its VAT revenue, the shift could create serious challenges for other states. Smaller states with weaker economic activity, such as Kebbi or Taraba, would face financial instability due to their inability to generate as much VAT.
Additionally, states with limited capacity to collect VAT, like Zamfara, could struggle to meet their fiscal needs. The change could also disrupt interstate trade, especially in regions like Kano, which relies on commerce with Lagos.
Taiwo Oyedele, the Chairman of the Presidential Fiscal Policy & Tax Reforms Committee, has emphasized the importance of engaging key stakeholders in the discussion to find an equitable solution.
His committee is focused on creating a balanced VAT formula that addresses the concerns of economically stronger states like Lagos while ensuring the stability of others
RMAFC’s role is critical in ensuring any changes to the VAT formula are fair and balanced. The proposed reforms should address the concerns of economically stronger states like Lagos while protecting the financial stability of smaller states.
The key challenge is to find a solution that benefits both, ensuring sustainable growth and development for all regions, preventing further economic and fiscal risks, and maintaining national unity through fair fiscal policy.
