By Femi Mustapha
Financial Experts and Tax Administrators from the Academia and government have warned that the ongoing controversy over the Value Added Tax (VAT) should be handled with caution so that it doesn’t degenerate into a conflagratory crisis.
They asserted this during the first Economic Intelligence Unit Policy Dialogue Organized by the Planning and Budget Commission, Kaduna.
The Panelists said the whole issue is ill-timed, because VAT is a regressive tax that takes a larger percentage of income from low-income earners than the high-income earners, noting that the debate is coming at a time that the earnings of an average Nigeria is dwindling. Hence, cause for concern.
A Panelist who is the Executive Chairman of Kaduna State Internal Revenue Service, KADIRS, Dr. Zaid Abubakar observed that when one look at the horizontal allocation Formula of VAT which has parameters for allocations, Decentralization of VAT according to states will not be too realistic.
He stressed that there is something wrong with the law of the VAT, which needed to be addressed for the heated debate over VAT be tamed.
According to him,”If you look through the horizontal allocation formula, you will see that there are parameters that are used for the allocations. Population, Equity and Derivation. There is no way if we bring Decentralizing system of VAT, Lagos will take fertile share than kaduna state, because of the population of some of these states are having
if you revert the sharing formula, what we have today is, Equity takes 50%, Population takes 30% and Derivation takes 20%. Now if you have performance base on Derivation and population, not by equity, if you are to revert the parameters and say okay, Derivation been the major parameter here should take 50% and population should take 30% and Equity takes 20%, all these clamour won’t be there because state with the highest number of residents will take a larger chunk due to the fact that they have More transaction taking place in the state, and stand to derive more revenue”
“Now if you allocate 50% of whatever is been collected as Derivation strength, to state like Kano been the Largest states interms of population will take the highest chunk, Possibly followed by lagos then Kaduna, let’s take it in that order, then the clamour I think will go away, because in some case when you follow up the debate tends to take some political dimension, but we can address it through addressing these parameters especially the percentage allocation, the only way we get it right or going forward”.
He explained that the only way to get it right or going forward is to look at the Central account system, thereby reintroducing the Branch still and State code.
“So you need to introduce Branch-still alongside State code, that’s the only way you will be able to aggregate and isolate collection by each state and also account for Derivation. So I think changing the sharing formula will address the Clamour”.
Similarly, Dr. Dahiru Sani, Kaduna Business School, who is part of the Panelists expressed that the debate is timely, as it is an issue that would need to be faced either sooner or later.
“There is physical tightness, there would be alots of dangers allowing the decentralization of setting of VAT percentages. Eg Lagos setting it own, Kano setting it own, Kaduna, and so on, different VAT regime in different states, it will be very dangerous for the Economy, I think the best thing to do is to maintain the current structure of having a centralized VAT which is presently the 15%”.
“Different VAT regimes will cause state begin to compete with one another and what that competition will lead to is that some states will be given lower VAT, which will attract more people to come and invest in their State and some state will be increasing their VAT, because they are looking for more revenue, it will create push and pull situation in different parts of the country”.
He therefore proposed that States should be given time to have a face arrangement of how their VAT collection and allocation would be.
“At the end of the day, I think what we should maintain, or what we should do for economic growth is give a face arrangement, I suggests and propose a 25 years arrangement where over that period different states Would have an understanding that look with time the formula will gonna change.
it is a wake up call and I can assure you that if we continue this way and something doesn’t happen, states that are getting interms of influential advantage not generating but receiving, it will continue like this, and things will get worse”, he noted.
In his remarks, Commissioner, Planning and Budget, Muhammad Sani, said, Kaduna state is always engaging citizens and engaging experts so that the state gets the best Ideas for policy Implementation.
The policy dialogue he explained is something that was created at the Budget and planning commission to ensure that they get the voices from outside so that people from outside can also come and discuss.