VAT the Catalyst!

A few weeks ago, we were all jolted to the news of River state government winning a court case to take over VAT collection in its jurisdiction .This ignited a media frenzy and all sorts of analysis from different characters for and against it. Even the laggard, Lagos who will be the greatest beneficiary, if this eventually sails through, quickly jumped on it and passed a law within a few days to take advantage of the possibilities and even joined the River state govt in the suit against the federal government. Perhaps, if the Lagos state govt showed such level of urgency on other matters of governance, especially the roads, the state will not be in such a dire strait. Back to the issue of VAT, the catalyst of this frenzy and great awakening is, Wike the Governor of River state. I’m not a fan of Wike, perhaps because of his brash approach to issues, the video of him lampooning the traditional rulers in his state a while ago readily comes to mind. But there is one thing you can't take away from the man, is his courage and conviction to follow through on whatever he believes is right.


We have also seen plenty of intellectual gymnastics being bandied around in the last few weeks justifying the continued VAT status quo. The most laughable one is that the Federal government will be the biggest winner, since they are statutorily empowered to collect the import component of the VAT which amount to about 50% of the total sum, so they get to keep it. This is far from the truth, while it is true as at today the states do not have the legality to collect import components of VAT. The accrued revenues belong to the three tier of government and I suggest the governors should also seek for a new sharing formula heavily weighed in favour of derivation.


The most plausible argument which may make some sense, is the issue of ease of doing business. Conglomerates with branches across the country will now need to navigate VAT payments in 36 +1 jurisdictions. Which perhaps may create additional administrative burden and nightmare. Examples of India were used, they argued that they initially went the route of individual states and they had to eventually jettison it due to issue of multiple taxation and a slide in the ease of doing business, and had to revert back to the central collection. Fair enough, but what they conveniently failed to point out is the sharing formula for this central collections

In the Nigerian situation we already have an issue of multiple taxation and VAT may provide an opportunity for harmonization or on the flip side to further complicate it. Lagos for instance already charges 5% consumption Tax on hotels and event centers, and those entities still need to pay the 7.5% VAT amongst other Taxes. With Lagos in charge of her TAX this automatically should knock off the double taxation in that space. But yet again this is just one state, most states already have a plethora of multiple taxes which are random and unstructured, this may also be an opportunity to get them structured under the VAT regime.

The more interesting arguments are from the states that will be heavily impacted, the response of two state Governors, readily comes to mind, the Gombe state Governor, who was rather diplomatic,  implored that we should be our brothers keepers and less endowed state should not be left to suffer and the “wannabe” president in Kogi rather went on a youthful tantrum, stating it was rather wicked for more endowed states to seek a more fair share of resources generated from their domain, that God did not create us equally. Well, both governors said the said the same thing albeit in a different way, my response will be first to the youthful “wannabe” president, if he tried to stay a bit more in his state rather than Abuja and jettison the illusion of presidential ambition, he will able to see the abundant resources in his states just waiting to be unleashed.

For the Gombe Governor, he is right and I support him on that assertion, but you will not be a good brother by just feeding him, the best way is to show him how to feed himself. Governors need to start thinking creatively to create wealth in their various domains, a very good instance was the strategic partnership between Kebbi state and Lagos state on the Lake rice project. Using the comparative advantage of both states to create wealth on both sides. More of this strategic alliance needs to start happening to help us boost the productivity of our country.


On a final note the issue of fiscal federalism has reached a feverish pitch in the last few years, with both the federal government and more importantly the National Assembly playing the ostrich. It's an idea whose time has come. No nation can ever prosper with the way we are structured. Is an anathema to anything progressive. Fiscal federalism is inevitable. This our indolence inducing federal structure is no longer sustainable, something just has to give. Those who may think they are on the receiving end today, should see this as an opportunity to unleash possibilities in their states. Is time to end visiting Governors, who practically live in Abuja and visit their state and get people who are ready to put in the hard work of creating value in their domains. Whichever way this VAT issue may end, it has further ignited a bigger conversation on fiscal federalism and it may surely be the catalyst to the restructuring we all clamor for.

Oladapo Kasumu

Public Affairs Analyst, writes from Lagos. Oladapo.kasumu@gmail.com