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FIRS Chairman Criticizes Unequal VAT Distribution, Calls for Reform to Benefit All States

Published by Tope Fakinlede on November 20th, 2024.

FIRS Chairman Criticizes Unequal VAT Distribution, Calls for Reform to Benefit All States

Zacch Adedeji

Dr. Zacch Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), has argued that the current distribution of value-added tax (VAT) proceeds—where Lagos, Rivers, and the Federal Capital Territory (FCT) receive 70%—is unfair to the other 34 states. During a session with the House of Representatives on Monday, Adedeji highlighted the need for a tax reform that would ensure a more equitable allocation of VAT revenue.

Adedeji revealed that, just last Friday, he approved the disbursement of 42% of October’s VAT proceeds to Lagos alone, a scenario he believes unfairly favors a small number of states. He explained that Lagos, Rivers, Oyo, and the FCT together receive over 70% of VAT proceeds due to the concentration of the country’s largest companies in these regions. While these states benefit from head offices of major revenue-generating companies, such as mobile network operator MTN, which contributes heavily to VAT collections in Lagos, Adedeji emphasized that 70% of Nigeria’s VAT comes from consumption spread across the entire country.

The FIRS Chairman pointed out the disproportionate share of VAT received by states like Lagos (42%), Rivers (16%), and the FCT (10%), despite the fact that the majority of consumer activity occurs outside these areas. He argued that this system does not align with the nation’s best interests. “70% of consumption is not happening in these three states. That’s why we need a reform,” Adedeji stated.

Adedeji also highlighted the severe disparity between states like Lagos and the northern states, where VAT collections are much lower. For instance, Borno and Bauchi together receive a tiny fraction of the VAT proceeds, at just 0.32% and 0.4%, respectively, while Lagos alone receives 42%. “Whenever I sign these figures, I feel like I’m not doing what is right for Nigeria,” he admitted, emphasizing the need to adjust the structure in line with national interests.

The proposed tax reforms aim to ensure that VAT proceeds are distributed more fairly based on actual consumption, benefiting all states, regardless of their economic status. “With the proposed Bill, every state, whether economically advantaged or disadvantaged, will benefit,” Adedeji asserted.

However, the proposal has sparked some debate. Lawmakers such as Babajimi Benson (APC, Lagos) and Adamu Yusuf Gagdi (APC, Plateau) voiced concerns about the potential negative impact on their states. Gagdi questioned how states in conflict zones, like those in the North, could benefit from consumption-based VAT if displaced populations have limited access to goods and services.

Despite these concerns, Adedeji defended the proposed changes, urging that the reform would lead to a fairer, more balanced distribution of VAT revenue across Nigeria. His remarks were met with applause from some lawmakers, although the debate on how best to implement the reform

s is ongoing.