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Lagos VAT Contribution: Between Fact and Fiction

By Wale Olayanju

The ongoing debate about Value Added Tax (VAT) has been both interesting and enlightening.

As a converted fencist however, I have not lost any sleep over it. I am experienced enough never again to stick my neck out for polticians and their political rigmaroles. Even if states are allowed to collect VAT, how will that better the lots of us citizens?

No, fencists are not neutralists.

We have our politicial biases. We have only decided to be objective and not totally accept or reject anything. We believe that in bad, there is good and in good, there is bad. So, fencism is not neutralism. It is only about not taking sides, afterall one can not be totally right or be totally wrong.

Yes, I agree the development is a step in the right direction in our attempt to restructure the country. However, it will only translate to more money for some states which will eventually end in the pocket of the politicians. What have they done with the ones they have been collecting?

Since the debate commenced, the social media space has been awashed with different conjectures, some good, some bad, some ugly. However, the one I find rather disturbing is about the contribution of Lagos State to the total VAT revenue generated by the Federal Government. It is gradually becoming entrenched that even tax experts and economists have started quoting the figure without taking a second look at it.

It is said that when lie is allowed to go unchallenged, it becomes truth before public. Hence, the need for this piece.

In 2018, the National Bureau of Statistics (NBS) released data about the vehicle number plate production in Nigeria. A breakdown of the statistics showed that Lagos has the highest with 60.87 per cent. Since the report was released, many had assumed that over fifty (50) percent of vehicles in the country are in Lagos and have been going around with that impression.

Of course, this is not correct. We know that many non-Lagosians prefer to have Lagos number on their vehicles despite that they do not reside in Lagos.

The same interpretation has been given to a statement by a former Minister of Finance, Mrs. Kemi Adeosun. In August 2017, Mrs. Adeosun revealed that 55 per cent of the revenue generated by the Federal Government from Value Added Tax receipts was being collected from Lagos State.

Last Wednesday, at a public hearing on “A Bill for the law to impose and charge value Added Tax on certain goods and services provided for the administration of the tax and other Related Matters”, the Speaker of Lagos State House of Assembly, Mudashiru Obasa was quoted to have said that Lagos State generates an excess of N500 billion in Value Added Tax annually.

Nothing can be more misleading.

While it may be correct to say that 55% of VAT generated in Nigeria is COLLECTED from Lagos, it is wrong to concluded that the 55% is GENERATED in Lagos.

VAT by definition is CONSUMPTION tax.

It is levied on a product repeatedly at every point of sale at which value has been added. The tax is added when a raw materials producer sells a product to a factory, when the factory sells the finished product to a wholesaler, when the wholesaler sells it on to a retailer, and, finally, when the retailer sells it to the consumer who will use it.

In summary, VAT is borne by the final consumer.

Under the Nigerian VAT regime, Nigerian companies that are carrying on VATable transactions are obligated to deduct VAT at source and remit directly to the tax authority, which is Federal Inland RevenueService (FIRS). So, if you are a company with offices in all the states of the federation, VATs are calculated at the head office and remitted in the state where the Head office is located.

This has worked “in favour” of Lagos State.

In Nigeria, the headquarters of many of the big companies are in Lagos. So, when VATs collected for all goods and services in all states of the federation are computed, they are paid in Lagos. In essence, what is paid in Lagos by that company is not what is generated in Lagos alone, but in all the states where the compay’s good and services are connsumed.

Let us use the mobile phone industry for illusration.

As at Q4 of 2020, the total number of mobile phone subscribers in Nigeria was put at 204.6 million. The breakdown in each of the geo-political region is as below:

1. South West- 58.37million (28.5%)
2. North West- 42.53 million (20.8%)
3. North Central- 37.07 million (18.1%)
4. South South- 29.6 million (14.5%)
5. South East- 20.1 million (9.8%)
6. North East- 16.96 million (8.3%)

Out of the above figure, the total number of mobile phone subscribers in Lagos 24.88 million subscribers (or 12.1%).

Other states in the top 10 include Kano State (12.67million), Ogun State (12.01 million) Oyo State (10.45 million), FCT (9.01 million), Kaduna State (8.71 million), Rivers (7.46 million) Edo State (7.1 million), Delta State (6.91 million), Niger State (6.53 million) and Anambra State (5.79 million)

However, because the headquarters of all the mobile phone companies are in Lagos, the VATs collected from the subscribers from sales of airtime, data etc in all the 36 states and the FCT are calculated and remitted in Lagos. So, whereas the VAT is remitted in Lagos, not all is generated in Lagos.

So, if mobile phone companies paid N50billion to FIRS in Lagos as VAT in August 2021 for example, it is entered as VATs collected in Lagos. This is despite the fact that Lagos State constribute “just” 12.1% of the mobile phone subscribers.

The same applies to other big companies like Nestle Plc, Nigerian Breweries PLC, Flour Mills of Nigeria and all the banks who have their head offcies in Lagos.

In summary, Lagos is paying VAT on behalf of other states. This is not to dispute the fact that Lagos may be contributing more than 50% of the 55% VAT collected in the state.

That is why I disagree with the River State Governor about his jibe that “You can’t contribute humongous numbers during elections that can’t translate to tax earnings for your state”. If VAT is calculated and remitted based on where the goods are consumed, it will be clear that population is a major factor when it comes to generation of VAT.

Unfortunately, the way the collection of VAT has been structured in Nigeria has made some states to look as if they are useless.

As the debate continues, I will not be surprised if the template used in collating VAT is editted in the nearest future to reflect where the good and services are actually consumed. That is, if FIRS eventually wins at the Supreme Court.

Until then, make politicians continue to take una catch cruise. As for me, I nor dey house.

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