Why FIRS should continue to collect VAT

Factual Pursuit of Truth for Progress



Constitutionally, federal taxation powers are not plenary but as expressly and specifically enumerated therein. In so far as Consumption tax or Value Added Tax is neither on the Exclusive nor Concurrent Legislative List, it is residual and therefore vested in the States.

Pragmatically, because the States are many and small in sizes with a real possibility of overlapping value chains, VAT might be best collected centrally for the Joint Tax Board and shared _pro rata_ the States as much derivation can be attributed. FIRS may charge a 5% administrative fee while FGN takes the import component of the VAT. In the end, it won’t be too far from what it is today, but with more accuracy in attribution and equity in sharing. A state by state VAT regime is sure to be chaotic and burdensome.

A big alternative is to adopt the federalist approach by abolishing the VAT completely and reverting to the Sales Tax administered in each State as practised in the USA. Each State would have to strengthen the capacity of its tax administration to collect as much as they are getting now. The incidence would be on sellers and buyers in commercial transactions.

A particular State Governor gave an example of awarding contracts and collecting VAT of over N40bn only to receive N15bn in return or so. He forgets that majority of products used and services engaged to carry out the contract in Rivers State might have been imported (federal) and produced in other States. Federal Government and those other States too are entitled to portions of the same VAT.

A huge component of goods and services that make Lagos State generate so much in VAT are derived from importation through federal ports located in Lagos and goods produced in other States and consumed in Lagos. The value added inside Lagos State is not as high as the total VAT amount collected in Lagos State. A centrally collected VAT saves us these complex analyses at the point of collection. At the point of sharing proceeds, a Joint Tax Board would be a more conducive forum for such complicated algorithms of attribution and derivation.

No country with a federal system collects VAT at subnational level. It cannot work due to free flow of commerce which necessitates value chains across state boundaries. See India, Canada and USA for guides. That is why USA has no VAT. And Sales tax is based on the residence of the buyer. That is why India collects VAT centrally. Why should Lagos alone collect VAT for goods imported into Lagos from China and sold in Lagos to an end-user in Anambra or Kano? What has Lagos contributed beyond warehousing? A central collection is best here and after collection and during sharing, these analyses can be done by the Joint Tax Board

Many who rejoice or lament now will find out sooner than later that their sentiments are too premature and we need less politics and more policies in this aspect of our federal fiscalism


  1. This Subject of continuing payment of VAT to the Federal Inland Revenue should be optional. I am trying to understand more about the Subject but from the much or little that I know, I do not see the sense nor fairness is pulling a lot of money from even Southern States through VAT on things like Alcoholic beverages, or Night clubs and then SHARE it out to the Northern State who have abolished the sales of alcohol and Alcoholic beverages in their States, nor allowed night clubs, barbers salons to thrive.

    One cannot continue to rob Peter to pay Tom and Paul.

    State Taxes should be preferred and promoted so that each State is allowed to collect their tax and then pay the FIR a given, EQUAL percentage of VAT raised.

    Let States be encouraged to generate funds and work at time. Nigeria and Nigerians are now ‘woke’ and truly I think that VAT payments to FIR should be discontinued.

    There are 17 States in Southern Nigeria and the rest 19 with FCT are in the North. A revisit of the terms in collecting the VAT from Southern Nigeria to pay more to the North, is needed and a call for EQUAL number of States arising from both Sides is necessary as we map out the roads towards a fairer and new Nigeria 🇳🇬 for us all.

    My simple take on this 🙏🏽🙏🏽🙏🏽

  2. Without any sentiment, I think this is the clearest and very simple explanation amidst the turmoil of why the VAT should be collected centrally and shared amongst component States. Since those states that are making fat VAT returns may not necessarily be the originators of those services from which VAT returns are made.
    But from all of this, there is still the concern of whether there are states benefiting from the VAT whose contribution is insignificant compared to the % they are receiving?


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