Muhammad Nami, the former Chairman of the Federal Inland Revenue Service (FIRS), has called on the National Assembly to pass the proposed tax reform bills, emphasizing their potential to address long-standing inefficiencies in Nigeria’s tax system. According to Nami, the reforms, particularly regarding value-added tax (VAT) administration, would enhance fairness, transparency, and accountability in tax collection and distribution.
In an article titled VAT Attribution and Derivation: A Personal Appeal to All Parties, Nami highlighted a critical flaw in the current VAT system, where tax returns are reported based on the location of company headquarters rather than the place of consumption.
“This system allows 20% of VAT returns to be distributed to states where company headquarters are located, regardless of where the actual consumption occurred,” Nami explained. “This is why states like Lagos, FCT, and Rivers receive the largest share of VAT revenue under the current regime.”
The proposed amendments would require VAT to be reported based on the place of consumption, ensuring states where goods and services are actually consumed receive a fair share of VAT revenues. “This shift would foster a more equitable distribution of VAT, benefiting states that are currently underrepresented,” he added.
Nami underscored the need for fiscalisation—a system that uses technology, such as cash registers and point-of-sale (POS) systems, to automatically record and report business transactions to tax authorities. He argued that fiscalisation would enhance transparency, accountability, and compliance in VAT reporting.
“The Federal Government, FIRS, and the Federation Account Allocation Committee (FAAC) must collaborate to fund fiscalisation, which is a key component of the Nigeria Tax Administration Bill,” Nami stated. “It will limit subjectivity in VAT reporting and address concerns from stakeholders, particularly state governments.”
Boosting revenue and economic Transparency
Fiscalisation, according to Nami, would also improve revenue tracking, particularly for cashless transactions, and enable the implementation of an immediate tax refund system. This, he noted, would reduce the influence of vested interests in the VAT process and ensure accurate data collection through a national revenue data centre.
“The establishment of a world-class National Revenue Data Centre is critical for enhancing transparency and curbing manipulations by tax accountants,” he said.
To ensure a smooth transition, Nami proposed a phased implementation of the reforms over three to five years. He argued that this timeline would allow the FIRS to complete its ongoing internal reforms, including upgrades to its infrastructure and systems.
“It’s essential to build the capacity of FIRS and address outstanding projects like the fiscalisation initiative and the completion of the FIRS headquarters, which includes a dedicated National Revenue Data Centre,” Nami said.
Nami appealed to lawmakers and stakeholders to prioritize the passage of the tax reform bills, emphasizing their potential to modernize Nigeria’s tax system and ensure a fairer, more effective revenue-sharing formula.
“With these reforms, Nigeria stands to not only boost revenue generation but also establish a more transparent and accountable tax system that benefits all states equitably,” he concluded.
The proposed reforms represent a significant step toward addressing structural inefficiencies in Nigeria’s tax administration, fostering economic fairness, and ensuring sustainable revenue growth for both the federal and state governments.
