The Federal Inland Revenue is known to collect the VAT (Value Added Tax) on goods from all the 36 states in Nigeria. The majority of the tax collectibles are made from Lagos and Rivers however the sharing formula allocates 15% of the tax to the Federal government,35% to local government, and 50% to State government and this sharing formula while on paper looks good, however in reality, it is flawed.
The value Added Tax (VAT) contributes 16.2% % to the Gross Domestic Product (GDP) of Nigeria in 2019 and it is a financial instrument that the government uses to generate revenue.
While Lagos and Rivers State have high internally generated revenue, states like Bayelsa, Jigawa, Adamawa, Yobe, Niger, Taraba and Benue have the lowest internally generated revenue in Nigeria and from the way things are structured; most states depend on funding from the Federal Allocation Account Committee (FAAC) to compensate for their poor internal revenue.
Analysis has shown that while 50% percent of the fund goes to the State, about 20% is shared based on the principles of derivation however those enjoying this sharing formula are mostly states with low internally generated revenue.
Brand Spur Nigeria reports that this has led Lagos and Rivers states to advocate for State collection of Value-added taxes (VAT). Joining the aforementioned states in the adoption of the VAT bill is Ondo, Osun State Governors, other southern governors yet to join in the train.
If the aforementioned states become successful at VAT collection, it is going to negatively impact the source of revenue for other states and why some believe there are benefits in the collection of these taxes by FIRS, there are indications that the tax revenue allocation has made many State Governors in Nigeria lazy.
Flawed VAT Sharing Formula: The laziness Syndrome Among Nigerian Governors
The laziness stems from the belief that though they are struggling with internally generated revenue, there is a good source that gives them funds that don’t require them to improve the economy and infrastructures of their states.
Another issue that should be raised is the religious bottleneck experienced in the North, they partake in sharing VATs from items prohibited in the North, how can you starve businesses of financial growth and yet want to profit from their taxes?
The dependency on the revenue of the FAAC is helping to slow the growth of states in Nigeria thereby contributing to the retrogressive changes we are encountering. States should work on attracting investors, building infrastructure and developing human capital that would help them increase their internally generated revenue and overall economy.
The Federal government should have a critical look at its sharing formula and possibly enforce each state to remit a certain percentage of their total collections after collecting the VAT from their citizens, this would allow states in the country sit up and find the much-needed solutions to their problems.
The Federal government can then decide that out of its own percentage of the value-added taxes should be used as a form of support to states in need possibly as a form of support or even loans.