Rita Odafe
The Chairman of the Federal Inland Revenue Service, Zacch Adedeji, has pointed out that just three states are reaping the benefits from the existing tax legislation.
According to him, these states collect over 70% of the Value Added Tax (VAT), while others get only a small share.
Adedeji made these comments on Monday at a public hearing regarding President Bola Ahmed Tinubu’s tax reform proposals in the House of Representatives in Abuja.
His remarks follow the discussions surrounding the tax reform bills that were introduced to the National Assembly in early October 2024.
The bill faced opposition from Northern Governors and the National Economic Council, who expressed concerns over the VAT distribution model, which allocates resources based on the location of consumption rather than where VAT is paid.
During the session at the National Assembly, Adedeji noted that the current distribution mainly favors Lagos, the Federal Capital Territory (FCT), and Rivers states, as these are where most corporate headquarters are based.
He emphasized that the proposed reforms are intended to rectify this issue by implementing a derivation principle, thus promoting a fairer allocation of VAT across all states, irrespective of their economic conditions.
He stated that the pending tax reform legislation is designed to ensure equitable benefits for all states in Nigeria.
“As of October, Lagos will receive 42% of the VAT, Rivers will get 16%, Oyo will take 5.2%, and the FCT will claim 9%. Collectively, these three states are receiving over 70% of the tax,” he explained.
“This situation arises because these areas host most corporate headquarters, and it’s important to note that a significant portion of consumption occurs outside these states.
“Thus, states other than Lagos, Rivers, and the FCT do not gain from the current tax structure.
“For example, despite MTN being the largest contributor, its contributions predominantly benefit Lagos due to its headquarters’ location. Once this bill is approved, every state will reap the benefits, regardless of Nigeria’s overall economic landscape,” Adedeji concluded.
