 Our first major conversation this morning is about the controversy surrounding the value added tax. We've seen a different opinion from different quarters, some saying, you know, this would add value to the economy of states as an entity and would include, you know, fiscal federalism, devolution of powers, allow states to control their own resource and be good for the entire state as a whole. But other reports have seen have, you know, debunked that notion, saying that actually most states would suffer than usual because of the value added tax and all the controversy surrounding the structure of how the tax should be collected. We'll join this morning to analyze these issues by a financial analyst, Mr. Shagun Shaleh. Good morning, Mr. Shaleh. Thank you for joining us. Mr. Shaleh, good morning. Can you hear us? All right. While we try to connect with Shagun Shaleh, the conversation really is about, you know, looking at the little details here and there with regards to Nigeria's taxation, you know, system and seeing who exactly gets to benefit from the value added tax debate. If, you know, eventually courts give a go ahead that states should start to collect their own taxation. How does it change a lot of things and details, you know, with states across the country? And also try to try and dispel that myth that this is a north versus south, you know, issue. Also, local governments and how they will be affected because if you look at, if you follow the conversation, states have also argued the percentage for local government should also be reduced. And so there's a lot of details. What is the, you know, value added tax derivation in different states and different regions across the country. You will be shocked to find that there's a lot of states that are not in the north, you know, and I think I said this last week. There's a lot of states that are not in the north that also have very, very poor tax derivation as low as 0.07%, 0.06%. You know, and how will they be affected by this? Another very important, you know, detail is what should this teach states across Nigeria? What should this teach state governors, you know, and, you know, they are, they are internally generated revenue drive. In what ways should they now start to think and look inward or ways that they can generate revenue for themselves? In what ways can they create a better environment that will give them more taxable income or give them more companies, more businesses, more personal income that is state contacts. There's many, many of these details here and there that are important and not, you know, just the argument over, you know, should it be, you know, for the federal government, the FIRS or for states. And so that's, you know, most of the conversation that we'll be having this morning. A lot of times I was talking about Nigeria's tax bracket and how I feel like the federal government itself needs to reorganize its taxation scheme. In what ways can the Nigerian government maybe tap in more from taxation? If for a lot of countries, there's, you know, you could look at, you know, the percentages of, you know, personal income tax that countries like the United States or in South Africa, in the UK, get to earn from and compare that with what we earn here in Nigeria. Should the Nigerian government be looking out for more ways to tax Nigerians or should it be looking for more ways to, or ways to incorporate more Nigerians in its tax bracket? Because people would argue outrightly that there's many Nigerians who do not pay tax on a lot of things that they get to enjoy, benefits that they enjoy, you know, from, you know, the government and from the Nigerian state. So how can the Nigerian government then, you know, allow this go to states and let the FIRS back off from this argument and then instead, you know, find more ways to increase, you know, the number of Nigerians on the tax bracket, number of companies on all sides, all that in the tax bracket. Shegwin Shele, good morning once again. Yeah, good morning. All right. Good morning, Mr. Shele. Hello. Yes. Can you hear us now? Yeah, better now. Okay. So for people who do not understand what exactly the conversation is regarding this VAT, I want just to start from the basics and explain what exactly is VAT, because I've had people even ask me personally say, what exactly is this VAT all about? And I had to take my time to explain. So please explain to Nigerians what exactly is value added tax and what is the current structure of how it's collected? Okay. Thank you so much for having me. I think I can get some feedback on your end, but let me just try as much to respond to most of the questions. Now, value added tax, VAT process, is a type of consumption tax. It is an endless tax because of the person who bears the issuance of this tax is not given that directly to a mover to the relevant authority. Now, it is also a multi-stage kind of tax. So that is why you hear people talk about simply VAT and absolute tax. Now, every time every taxable person gets into a consumption of taxable goods or taxable services, then the person invariably is trained from the living as tax to the government. Now, government in this way is the federal government. Through the federal income revenue service as stated in the VAT law as the VAT act, the value added tax act 2004 as a mandate. Now, VAT in the course of its publication, the VAT act in the course of its publication actually came to an all or a clear what we know as the sales tax, which is a tool as to what people are paying on goods and services that they enjoy. So when VAT came to be, there were specific classes of goods and services that were exempted from the VAT calculation. You know, there is a long list of these items in the VAT law, some of which include medical and pharmaceutical products, basic food items, books and physical materials, baby products, part of my life as an executive review, agricultural, veterinary medicine, or export, and all that, quite a hair and a lot of them, of course. And therefore, services, medical services, services rendered by community banks, people's banks, and the medical institutions, please and performances by the personal institutions as part of them are these services which have been exempted from VAT. By the advent of the 18th act of 2000, which was promoted, no, 2019, we also had companies that is regarded as small companies getting exempt taxes. These exemptions taxes were granted them if, at all, they are thrown over in any one year in less than 20,000,000 miles. They are not under any obligation to pay VAT. Now, every taxable person who sells goods and services and charges VAT must have incurred some bit of VAT before getting to the point where his goods or services is being passed on or being delivered or supplied to the consumer, to the end user. So that is where we now say the infused VAT that is in the video I have paid at the point of acquiring material for production or goods for resale would be accounted for and deducted from the VAT that he is now charging. These are customers at the point of sale. So where there is a net difference, that is, you have a much higher VAT proportion of the output than the input, then the individual or the organizer now has that value to be limited to the FIRA. If you now have a much higher input VAT than the output VAT, then the individual or the organization would claim a refund from the FIRA. And practically, that doesn't really happen. What we are doing is to carry forward that input VAT over the output VAT for a future date where you can now utilize it if there is any amount that is supposed to be readily cabled by you to the FIRA. All right. So we don't kindly hold on. Mr. Sheller, can you hear us clearly? Sorry? Okay. Just to confirm that you can hear us clearly. So we don't get too technical. What we are trying to speak mostly on this morning is who gets to gain and who gets to lose if this goes or swings either way, either to the federal government or to the rivers and Lagos state governments. So there's certain things that I want you to speak on. The Lagos state itself has as high as 50% tax derivation, while there are states that have as low as 0.06% or 0.07% Zamfara or Shun state, for example. So I want you to help understand why this is. Why does Lagos have that high or that level of tax derivation and other states but barely even meeting up? Okay. That's a very good question. You know, the concept of derivation is really as it is known is who is bringing in too much more than the other. Yes. Who has the capacity to earn more than the other. Now, in the back pool, that is the policy of the bottom hand that is selected all over the federations. Lagos state brings in a higher perception of this value than most of the other states. In fact, it is said that between Lagos and River state, you are having a fatal contribution of two from the two of them as much as 70%. Now, if we state in the federation, out of the tactic states on the HEP, the better capital services, will go ahead and contribute this much over the period. And then by the time the distribution of the back pool is made to the relevant years of government, the federal states go together, and even all the 770 capital government offices, then the proportion of what is collectible within the territories of this state is not comparable to what they eventually get at the point of distribution. That has been the argument. Now, the federal government through the federal allocation accounts from the two. Also, which is not specifically stated in the back law, decided to go with the derivation, just as we did with the curriculum products, that they give a 30% of the total or the total value in the state, the oil in the state. Also decided to use a 20% or take out 20% of the value of the back collected in the pool to give the state that gives a higher proportion of the value of the back that they have delivered to generate from their resources, pressed to them before the balance is now distributed to the remaining states. Also, you can see another part of that I also did define. Yeah, but doesn't this paint a very clear picture of the failure of certain states? So if this eventually goes in favor of the Lagos and River state governments, what do these other states get to suffer? Yes, it's a non-pun. It's obviously, indeed, some states will suffer. They are suffering because of those batting, but the totality of their incidentally generated revenue is quite low. The majority of as much as 36 could actually go to transfer if the bat legal process between the Lagos state government and the River state government with the federal revenue that is eventually the cost grant stable in the state. Now, states who are here are even than 10% or just about 10% of the totality, in fact, that's even being cost, let me give you 20%. Those contributions would rather use this total internal generated revenue is less than 20% of the federal allocation accounts from each year would really have to be stopped not to pass in making up with the obligation. Now, you're right to say this. Could it be that, yeah, these states have suffered on the fence and did not even push themselves high enough to improve their revenue generation potential? It's obvious, isn't it? Because everybody, I mean, all the states, either to the point now, have had to move inward and look at how they can better their revenue generation potential. And then you prove on their revenue collection at specific levels to ensure that they can, as much as possible, survive without much of what will come from the federal cost, which is redistributed much, much higher. It is jokingly said that there are some states that just have an extension of our budget. They run through our budget every time to go get the allocation they need to be able to survive. So we can even really conclude that some of these states are not viable. So why create them in the first place? You know, everything we do, which we might not do for the immediate, basically for the long, for the long run, you have the strategic plan and the strategic agenda. But the situation where this goes is waiting for you. And these states now are doing, most of them that collected, we and I know, collected play out, even from the government of a couple of years back, are finding it now a big challenge to even pay back this money. Because it was not just the grant, it was the loan granted by the federal government. When they couldn't pay back, we heard some time last year when the federal government, in the previous package, a withdrawal, a thought, before they give them the balance of what's valuable from their past allocations. So which is thought? So what would expect that even now that there is a concern between who has the legal authority or the legal responsibility for collecting back? And many of us, whether me like that, that either so it's been collected by the federal government, that even now the state going here, now even having a voice, in trying to reduce the, and address the issue of peace of resolution, then there is, I would have seen, like I said, a concert effort being put up by most state governors and their government officials to sit down and start looking at areas where they can now start looking to earn or generate the need-dead resources with which to be able to keep running and functioning the state that they did the money. Because if you come to the point where we will not humanitarian crisis, some state has been dominated through the sovereign economic leadership. If the government of those states don't pay primary attention and give us the contrast that they give out to some of their people, then there will not be enough money moving around those states for the people to be able to have a meaningful livelihood. So that would be humanitarian crisis. Mr. Shelley, we heard what you said regarding, you know, asking why were these states even created in the first place when we see that lots of them, you know, are not even economically viable. But we know that right now there's a proposal to create 20 more states in Nigeria and, you know, in the heat of what we're seeing, the economic challenges of the country, we wonder how these states would survive. But how would you look at it as an economist? Do you lean more to what you said earlier that this will cause a humanitarian crisis? Or do you say this is actually what states need to sit up and make sure that they find ways to generate money for the estates and be self-sustaining? Yes, like you might say so. I mean, the ability of these states wasn't considered. Now, every new agitation that we're getting is not out of place when they can see that you can easily just sit back, hold your hands, cross your legs. At the end of the month, look at which one, collect whatever you need. So if 20 new states or even more states are created, what it simply means is that the current amount that is available to states like Delta, like Lagos, and even Lagos, we share whatever they get right now. We come down because we now have to give those states enough money, the new states that they provide. So it's about everybody milking the one single cow that is available to the mill. So we will milk the cow to the cow dies and everybody will now go back and start thinking. The principle of invention, necessity, is the model of invention, like the Englishman thought, would not come to play. So like to actually say, if this would be what it is to say for everybody to sit down and put their thinking up and start looking at ways to be able to get out a lot of their property, then maybe it's actually necessary. Because you know, really, if you look at the figures, if you suppose it's properly, you will be shocked that even if the state, not just legal reasons, not a lawyer that is contemplating, not just looking over the shoulders to watch what is going to happen at the end of the day, or cross over that he's already making efforts, if all these states, if all these states are able to help people, eventually get the pronouncement, if these states drive down and drive down far as the Supreme Court, and you now have the Supreme Court giving judgment because it's a constitutional matter. And by the introduction of the Constitution, except something drastically happens between now and when the Supreme Court approves this to remove the case on this matter, you will be shocked that the federal government, federal government would not do anything. It would rather even go, it would gain more. That's the truth. FCT would gain more. Because even as it is the proportion of the constitutional from the FCT in fact, the entire next to reverse, not legacy, is as far as legacy. So, if at all we are looking at who would give, who will give, federal government is the major data. Legals on the other side, yes, reverse, FCT, are the central data as well. I call them potential because they are all of them. You are actually not considered some of the challenges that are also involved in revenue collection. There is an administrative process, an administrative process, which is at a quite high, has now a 15% if care is not given. And then there is a challenge that we would have most of the people being on duty and allowed by police, if we would like to do so. Who will make life quite unbearable for the citizens in the course of them wanting to collect as much revenue for the good of government? Well, I believe that's one of the fears and it's one thing that I mentioned earlier that instead of increasing taxation, the government needs to find ways to increase the number of people in its tax bracket because I've seen businesses complain that there's different little, little taxes here and there. And you can simply see that it is the state government really trying to mop up funds in one way or the other. But I also want you to speak on dispelling this myth that it is a North versus South argument and that it is the Northern states that will suffer the most. Is this true, Shegun Shele? Honestly, it's not about locality. Let's be true Nigerians that we are. It's not about locality. It's not about the North. It's not about the South. Don't you have fears? Even within the South West, we are neglecting to do things on strong wills that will suffer the most. We have states like Oshun that will find it pretty difficult. Let's talk of a state like Oshun that will find it very hard to be able to survive. In the South, it's not your state that works with you under the pain of not being able to continue to collect what you used to have. So is that an isolated place that is enough that you have a given challenge? You know, and then, you know, it's not a good thing to have comparative analysis in every agreement to look at the figures in all arguments, to be factual in all arguments. And let's talk about the politicking and the politics. When argument is in real doubt that some section of the country consumes alcohol, they pay so much in vats and all that, you know, when you look at the proportion, the proportion of the vats collection per industry sector, you will also be told. Because those populations are quite revealing. You will be sure to know that professional services and telecoms actually generate as much as 10.6 percent of the total vats. Followed by other manufacturing services as much as 10.07, commercial and services 5.02, and their breweries, protein, and beverages, this is all a compassion up to transit rates for the residents, brings 3.9 percent, contributionally to the police. Now, I show you what I call alcohol, alcohol contributes on that 3 percent, on that 3 percent. So why are there so much noise that is alcohol that is making vats so much better for us? There is a whole lot of crazy activity in Lagos. Lagos is the economic map center of this country. That is not possible. You have no month of the oil companies having their questions of doing or questions of the cities and the rest of them within the Niagara Delta region. So is it any news that they are also contributing this much? You know, so when we make so much judgment, because what is that noise of political development, then all sorts of institutions, some that are not even real, are being advanced, and that is what is in the news there, and that is where everybody seems to be coming with the north, because the south, no, that is not it. Yeah, predominantly states in the south here that will suffer the greatest consequences of having these vats nationalized in their way, and given it to the sub-national, sub-national. But the time the sub-national is just kept over, and by themselves, start collecting vats, the most they eventually suffer. And say 32, all over the region. Thank you for 32. Okay. I want us to talk about the challenges, you know, that may likely come up, you know, if this swings the way Lagos and River State wanted to collect vat for themselves. We've seen, you know, opinion pieces saying that this would definitely bring up a challenge of revenue collection. How would states be able to collect this? Would they, you know, have to now create their own internal mechanisms to collect it? How are they going to deal with the leakages, the inefficiencies in this system, and would this lead to double taxation over taxation? Would this lead to inflation, you know, increasing price of goods and services, as you know, it seems that the government wants to expand the tax bracket, increase the number of people that pay tax, and maybe even how much it is. So please help us talk about the challenges that might come up when states begin to, you know, receive and collect taxes for themselves. Yeah, by the time it's paid by themselves, stop collecting the math by themselves. I've already talked about the identity, bottleneck, and the planning strategy. Already, I'm seeing a challenge. Everybody seems to be lapping using the Lagos State government for having quality past the vat law of Lagos State. The truth is, there was before the law was signed into a past, rather, so they are eventually signed by the government, or I think I'm trying this. There was a town hall, there was a presentation to the public by the Lagos State House of Assembly for people to make comment, and so much comment that the youth were advanced on suggestions on youth that the tax population or the taxable persons were showing good concerns about. So in 1924, after this meeting was held, you have the law then passed. So sorry, what happened? Did these people work all through the night and were able to satisfy themselves to have on, not talk all the politicians and the concerns of those who can present the ideas? So, could it mean something else beyond? Because I just talked about even the input and the output. Then, the Secretary of National Assembly came up with the argument that for youth to be able to effectively manage the past regime, because of the input and the output content of how the ban is chemically structured, that is only a unit of government, a whole government, federal, at the level of the federal government, can be the one to be able to effectively run the system without the fault or a challenge in the current, in the course of the administration of the ban. They are not talking, they are not wrong. But if you finish, people should actually sit down and then, without play politics, without doing it, without necessary decisions, the money won't make the public, but it carefully works with the people. But of course, what would you say next? Don't worry, when we get there, we will learn to vote and then we will do what is right, as you can say. Yes, it's also argumentative. It could be neither here nor there, but there will be increased cost on every state's internal revenue study to be able to generate this much cost, this much revenue that they require to be able to effectively get this vaccine that we have not localized is working for us. So, Mr. Shagrishala, you said that when we get there, we will learn the ropes. But what the states, especially states who seem to have a likelihood of losing out, what do they need to do to be able to pay salaries and meet up their obligations? No, if you guys don't revenue, you will not be seeing an aggressive revenue drive for most of this thing. If it comes down to the fact that every state should not go ahead and generate is unideal, vast is no longer coming from the federal force, get whatever you have at your own end and run your own state. You have to be aggressive then. The issue of double taxation will become a free follow-up because this thing to happen within the first human so that these states, especially the vulnerable states, will be able to access the vast or they come to the point where they need to maintain their laws and ensure that things are properly done. For example, the two states or rather the states, as we have said, that have gone ahead now to sign this law, has an existing law like a consumption tax. This consumption tax is being set on ice against a group of people in the economic sector of the hospitality group. They call it the hotel occupancy and restaurant consumption tax law, which targets 5% on every group of persons that is being enjoyed by any type of employer, that enjoys having food in a hotel, in a restaurant, or in an event center. So this law has made even those who want these businesses, who still pay DAT and who still pay the hospitality tax. It's already happening now. Isn't that double taxation in this law? But of course, when the law propagated that law, it was concepted up to the Supreme Court and then the Supreme Court gave the law, the judgment that, you know, the states actually have stopped pass by the Constitution to go ahead and then to stop consumption tax. That it is actually under the pro-view of state intervention to go ahead. And I think about one or two states, I don't think it also has to do with the law. I think kind of also has to do with the law. And I think there's a lot more to talk about. You can see the consequences. So there will be many of sorts that will come up. And then ultimately who will suffer? The people, the population. Yes. But don't make you find a way to survive. Don't make you find a way to exist. Don't make you find a way to achieve constitutional running with the best of its ability until they can find a lasting position no matter how long it takes to continue to want to survive. And the proper use to survive.