Dr. Zacch Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), has criticised the existing Value Added Tax (VAT) allocation formula, describing it as unjust to the majority of Nigerian states.

According to Adedeji, Lagos alone received 42% of VAT proceeds in October, with Rivers, Oyo, and the Federal Capital Territory (FCT) taking 16%, 5.2%, and 10%, respectively. This arrangement, he said, leaves the remaining 34 states with just 27% of VAT revenues.

“This structure does not represent Nigeria’s collective interests,” Adedeji stated, arguing that VAT should reflect consumption patterns rather than the location of corporate headquarters. For example, MTN, Nigeria’s largest telecommunications provider, contributes the bulk of its VAT from Lagos, despite operating nationwide.

He noted that states like Borno and Bauchi receive as little as 0.32% and 0.4% of VAT proceeds, respectively, underscoring the imbalance in revenue distribution.

The proposed tax reform bills, Adedeji assured, aim to ensure fairer VAT allocation, benefiting all states irrespective of their economic circumstances. He emphasised that reforms would focus on consumption, shifting away from the current headquarters-based remittance model.

Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, also highlighted the inequities of the current VAT Act, which allocates 15% to the Federal Government, 50% to states and the FCT, and 35% to local governments.

“The proposed reforms seek to reduce the federal government’s share while ensuring VAT is remitted based on where taxable services are provided,” Oyedele explained.

Oyedele also addressed broader fiscal challenges, citing the underperformance of Nigeria’s eight primary revenue streams—including personal income tax, property tax, and customs duties. While lamenting their inefficiency, he expressed optimism about the untapped potential for improvement.

“These reforms aim to recalibrate Nigeria’s fiscal structure, reduce imbalances, and promote sustainable economic growth for the benefit of all Nigerians,” he concluded.