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VAT CONTROVERSY: Lagos Chamber Canvasses New Sharing Formula In States

September 12, 2021
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As the controversy on collection of Value Added Tax (VAT) continues, the Lagos Chamber of Commerce and Industry (LCCI) is canvassing a review of revenue sharing between states and their local council administrations.

VAT was introduced in 1993 to replace the sales tax in states, with the original distribution formula of 50% to Federal Government, 35% to states, and 15% to LGAs. But, with effect from January 1999, the formula was adjusted to be 15% to FGN, 50% to states, and 35% to LGAs. Presently, states and LGAs share their allocation using the factors of equality 50%, population 30%, and derivation 20%.

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But the LCCI on Sunday advised that the current sharing formula for states and LGAs be adjusted using the factors of equality 20%, population 30%, and derivation 50% going forward.

“This arrangement should be agreeable by all concerned parties,” Dr Chinyere Almona, the Director General of the LCCI said in a statement made available to Prime Business Africa on Sunday.

“This can drive innovation on revenue generation in all the states towards increasing their internally generated revenue. It will also make the states more sensitive to the needs of businesses in their respective states, knowing that an enabling business environment is likely to boost tax revenues,” the Chamber said.

A court judgment had restrained the Federal Inland Revenue Service (FIRS) from collecting VAT and empowered the Rivers State government to collect tax from within the state. Following this, the Rivers and Lagos State Houses of Assembly passed respective Bills into law to begin to collect VAT. The Court of Appeal in Abuja Friday ordered a stay of execution of the court judgement, pending the determination of appeal filed by the FIRS.

But the LCCI, in a statement on Sunday, said it was concerned about the confusion that businesses face as to who is in charge of VAT collection.

“This is not healthy for the business community and planning,” its Director General Dr Almona, said.

The Chamber, however, welcomed the swift intervention of the Court of Appeal to reduce the uncertainties surrounding the controversies.

Almona said businesses should not be subjected to unnecessary hurdles and made to pay the same tax twice from different agencies. “The Federal Government should urgently establish an understanding with states on what is best for the nation and businesses.”

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