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Quick Take: Expect majority of States to have revenue challenges as Sanwo-Olu signs VAT Bill into law

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SAT 11 SEPT, 2021-theGBJournal- The Lagos State Governor, Babajide Sanwo-Olu, has signed the recently passed Value Added Tax (VAT) bill into law.

The law will empower the Lagos state Internal Revenue Service to impose and charge VAT on certain goods and services in the state. Therefore, it makes Lagos the second state, after Rivers, to have a VAT law that empowers states to collect the tax.

Given this new development, we expect the majority of the states to have revenue challenges given that 50.0% of the total VAT generated across the Federation is shared amongst all states and Lagos and Rivers state contribute c.60.0% of total VAT generated in the country.

However, we expect it to have a negligible impact on the FGN because VAT revenue (4.2% of retained revenue between 2015 and 2020) represents a negligible fraction of total revenue. Nonetheless, we expect the FIRS and state governments to continue to be in a legal tussle till the (1) Supreme court rules on the matter or (2) National Assembly passes a new law on VAT administration in the country.

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