Lagos Law Wrests Tax Control From Nigeria Federal Government

Nigeria’s wealthiest state passed legislation enabling it to collect value-added tax, further challenging the central government’s control of a key source of revenue.

Lagos governor Babajide Sanwo-Olu signed the bill into law on Friday, Information Commissioner Gbenga Omotoso said in a written statement. The state’s House of Assembly voted for the legislation on Thursday. 

Residents and businesses in Lagos, Nigeria’s commercial hub, are by far the biggest contributors of VAT in Africa’s most populous country. The Federal Inland Revenue Service currently administers the tax, and then distributes 85% of the funds to state and local governments. While Lagos receives more VAT than the other states, it gets back less than it provides to the federal government. 

READ: Nigerian Federal High Court Landmark VAT Decision: Tax Insight

The push by Lagos’s government for control over VAT follows a federal court decision in August that allowed the southern oil-producing Rivers state to take charge of its own tax matters. While FIRS this week failed to delay the execution of that order, it has appealed the ruling and asked taxpayers in Rivers to continue paying VAT to the agency.

VAT accounted for 1.53 trillion naira ($3.7 billion) of the federal government’s 4.95 trillion tax take last year, data from the National Bureau of Statistics show. The kind of VAT that the court ruling allows Lagos, Rivers and the nation’s other 34 states to manage would account for almost half that amount.

The “biggest losers” of any permanent change will be the 30 states that cumulatively generate less than 20% of Nigeria’s VAT and “will suffer significant revenue decline,” accounting firm PwC said in a note last month.

©2021 Bloomberg L.P.

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