₦airaland Forum

The Important question I want to answer here is, how much of their oil revenue do states get to keep after revenue sharing, and how much of their VAT revenue do states get to keep after revenue sharing with the newly proposed VAT reform. Note a caveat here that it will be slightly different from state to state due to population size, number of LGAs and other factors.

For this analysis, I will use Rivers, one of Nigeria's largest oil-producing states, and Lagos, Nigeria’s largest VAT-generating state.

Part 1: Oil Revenue Sharing

How Much Does Rivers State Get to Keep After Oil Revenue is Shared?

Let's Assume that N100 billion Naira is generated from oil revenue. Currently, Rivers oil wells generate about 21% of Nigeria's total oil revenue. So, for every N100 billion generated, N21 billion of that revenue was generated from Rivers oil wells. So what percentage of this do they get to keep after revenue sharing between states and FG? Let's find out.

Currently, this is the oil revenue sharing formula based on every N100 billion generated:

1. 13% derivation Fund. This is deducted first.
2. FG takes 52.68%. So, FG takes N45.84 billion (52.68% of the remaining 87% after derivation).
3. States share 26.72%. States share N23.24 billion (26.72% of the remaining 87% after derivation).
4. Local Governments share 20.6%. LGs share N17.91 billion (20.6% of the remaining 87% after derivation).


Out of the N23.24 billion for states, this is how it is shared among states:

1. Equality (40%). This means that 40% of N23.24 billion (N9.296 billion) is shared equally among all states. Rivers will get N9.296 billion/37 = 251.24 million.

2. Population (30%). This means that 30% of N23.24 billion (N6.972 billion) is shared to states based on their population size. Rivers state has an estimated 3.7% population of Nigeria's population, so it gets 3.7% of N6.972 billion = N258 million.

3. LandMass (10%). This means that 10% of N23.24 billion (N2.324 billion) is shared to states based on their landmass. Rivers state has approximately 1.2% of Nigeria's landmass, so it gets 1.2% of N2.324 billion = N27.89 million.

4. Social Development Factors e.g. School enrollment etc (10% of N23.24 billion = N2.324 billion). So let's assume every state including Rivers gets 3% of this N2.324 billion. So 3% of N2.324 billion = N69.72 million.

5. Internal Revenue Generation (10%). This means that 10% of N23.24 billion (N2.324 billion) is shared to states based on their IGR efforts. Based on 2023 data, Rivers generated approximately 8% of Nigeria's IGR, so they get 8% of N2.324 billion = N185.92 million.

6. 13% Derivation Fund. This means that 13% of N100 billion (N13 billion) is shared between oil producing states based on their share of their revenue generated from oil. My initial estimate was that Rivers generates 21% of Nigeria's oil revenue, so Rivers gets 21% of N13 billion = N2.73 billion.

7. All 774 LGs in Nigeria share N17.91 billion so each LG gets N23.13 million. Rivers has 23 LGs so it gets 23 x N23.13 million = N531.99 million.

Total allocation to Rivers = N251.54 million + N258 million + N27.89 million + N69.72 million + N185.92 million + N531.99 million + N2.73 billion = N4.05 billion.

So out of the 21 billion that Rivers generated, it keeps only N4.05 billion after revenue is shared with FG and states. As a percentage, Rivers keeps about 19% of the money it generates from oil after revenue share with FG and states. In other words, for every N100 billion generated from Rivers oil wells, N19 billion goes back to Rivers. The rest goes to FG and other states.



Part 2: Proposed VAT Revenue Sharing

Based on the newly proposed VAT, how Much will Lagos state get to Keep After VAT Revenue is Shared?

Let's Assume that N100 billion Naira is generated from VAT revenue. Based on August 2024 numbers, Lagos generated about 56% of Nigeria's total VAT revenue. So, for every N100 billion VAT generated, N56 billion of that revenue was generated from Lagos. So what percentage of this will they get to keep after revenue sharing between states and FG? Let's find out.

This is the newly proposed VAT sharing formula:

1. FG takes 10%. So FG takes N10 billion.
2. State Governments share 55%. So states will share N55 billion.
3. LGs share 35%. So all 774 LGs will share N35 billion.

Out of the 55 billion for states, this is how the money will be shared:

1. 60% Derivation. This means that 60% of the N55 billion (N33 billion) is shared to states based on the percentage they generated. Since Lagos generated 56%, it will get 56% of N33 billion = N18.48 billion.

2. 20% Equality Based Allocation. This means that 20% of the N55 billion (N11 billion) is shared equally among all states. So Lagos gets N11 billion/37 = N297.3 million.

3. 20% Population Based Allocation. This means that 20% of the N55 billion (N11 billion) is shared to states based on population. Since Lagos has about 6.85% of Nigeria's population, it gets 6.85% of 11 billion = N753.5 million.

4. Let's Add LG Revenue. LGs in Nigeria share N35 billion, so each LG gets N35 billion/774 = N45.22 million. Since Lagos has 20 LGs, it gets N45.22 x 20 = N904.4 million.

Total Allocation to Lagos = N18.48 billion + N297.3 million + N753.5 million + N904.4 million = N20.44 billion

So out of N56 billion Lagos generates, it keeps N20.44 billion. As a percentage, Lagos keeps about 36% of the money it generates from VAT. In other words, for every N100 billion VAT generated from Lagos, N36 billion goes back to Lagos.

Conclusion

With the newly proposed VAT reform, for every N100 billion Lagos VAT generates, Lagos keeps N36 billion. However, with the current oil revenue sharing formula, for every N100 billion Rivers oil wells generate, Rivers keeps only N19 billion.

Rivers keeps only 19% of its oil revenue while Lagos keeps 36% of its VAT revenue

What is good for the goose is good for the gander. Include oil revenue reform in the VAT reform so it’s fair for everyone.

nlfpmod Seun we need to ask the right questions and have an informed debate

When all the manufacturers in Lagos and Ogun move to Port Novo, Benin Republic or Ghana/Togo, i will see how the north will ask Ghana and Togo for VAT of what the northern Nigerian people consumes.

CodeTemplarr:
When all the manufacturers in Lagos and Ogun move to Port Novo, Benin Republic or Ghana/Togo, i will see how the north will ask Ghana and Togo for VAT of what the northern Nigerian people consumes.

or we can start asking now how states will ask for oil revenue when the wells are dry

Give them woto woto, you gave Helinus and his crew of zombies a difficult task. He’s been jumping around in the other thread, trying to defend absurdity. His struggles are as laughable as the nonsense he’s fighting for.

System202:
Give them woto woto, you gave Helinus and his crew of zombies a difficult task. He’s been jumping around in the other thread, trying to defend absurdity. His struggles are as laughable as the nonsense he’s fighting for.

I know. They get very agitated when someone holds them accountable. They thought this will be a walk in the park

givedemwotowoto:
The Important question I want to answer here is, how much of their oil revenue do states get to keep after revenue sharing, and how much of their VAT revenue do states get to keep after revenue sharing with the newly proposed VAT reform. Note a caveat here that it will be slightly different from state to state due to population size, number of LGAs and other factors.

For this analysis, I will use Rivers, one of Nigeria's largest oil-producing states, and Lagos, Nigeria’s largest VAT-generating state.




Conclusion

With the newly proposed VAT reform, for every N100 billion Lagos VAT generates, Lagos keeps N36 billion. However, with the current oil revenue sharing formula, for every N100 billion Rivers oil wells generate, Rivers keeps only N19 billion.

Is VAT the only revenue earned by the govt?

It is one of the smallest, even with the increase to 15%

You are also ignoring a proposal of the bill, where it is suggesting a change in the process of recognising VAT revenue..VAT will be recognised where the economic activity took place, not where the head quarters of the company is located. Which means that Lagos might not generate as much VAT as before.

If there is any provision of the law that the legislators feels it is unfair, they should present it.

Not just throw everything away.

The president has shown boldness and creativity to bring this up

loffyloffy:
Is VAT the only revenue earned by the govt?

It is one of the smallest, even with the increase to 15%

You are also ignoring a proposal of the bill, where it is suggesting a change in the process of recognising VAT revenue..VAT will be recognised where the economic activity took place, not where the head quarters of the company is located. Which means that Lagos might not generate as much VAT as before.

If there is any provision of the law that the legislators feels it is unfair, they should present it.

Not just throw everything away.

The president has shown boldness and creativity to bring this up

That boldness should be extended to oil revenue, because 3 of the top 10 lowest VAT generating states are oil producers. You take most of their oil revenue and distribute to FG and other states, but then when other states generate VAT, you want those states to keep most of their VAT money. What is good for the goose is good for the gander.

I am not against this policy, it's supposed to be a good policy, but we need to know the motive behind it. We need to have a broader conversation and answer the lingering questions. We're talking about fairness here. It should apply to all. If this policy is being implemented to favor Lagos while neglecting oil producing states, then it is not well intended

What's the hurry when we don't fully understand the financial implications of this bill?

This should be on front page for them to see their hypocrisy. Yeye people

Oil revenue are taxed under petroleum profits taxes not VAT. Your post is baseless .
For example Mtn generates 120billion VAT which is attributed to Lagos but the VAT came from the 36 states and FCT. This new bill will share it based on consumption

ednut1:
Oil revenue are taxed under petroleum profits taxes not VAT. Your post is baseless .
For example Mtn generates 240billion VAT which is attributed to Lagos but the VAT came from the 36 states and FCT. This new bill will share it based on consumption

The guy has been making baseless noise up and down for while now.

Softmirror:
The guy has been making baseless noise up and down.

sentiments dont allow people reason, it even looks like chatgpt which is not always right. Akpabio is the senate president he can also push for increase in derivation from 13%

You see this thing dey wan do... others go do there own o


Your VAT


Oboy how about others resources that is feeding this kwantiri

You see this madness eeeh wey balablu want start make SW no run o

ednut1:
sentiments dont allow people reason, it even looks like chatgpt which is not always right. Akpabio is the senate president he can also push for increase in derivation from 13%

D guy sabi write TURENCHI.....🤗. He has been very agitated for a while now.

BlackfireX:
You see this thing dey wan do... others go do there own o


Your VAT


Oboy how about others resources that is feeding this kwantiri

You see this madness eeeh wey balablu want start make SW no run o

All of you are just gullible. The new Tax bill with respect to VAT is one of fairness and equity.

You really need to stop the propaganda against Lagos and the tax bill. You made a fundamental error in your calculation by ascribing 56% of total VAT generated to Lagos state. You can’t use the current figure to calculate using the proposed rate. The proposed law has eliminated using headquarters payment as basis for calculating VAT generated by state. It will now be consumption based and as at today, we don’t have that figure. So, your calculation is entirely wrong as it is not based on any accurate data.

The above error aside, crude oil is a God given natural resources. It is God’s blessing to Nigeria and not the handiwork of anybody. VAT on the other hand is a consumption tax. The more the people of a state consume, the higher the VAT generated. All your state need to do to get more VAT revenue is to increase the consumption pattern of their states. It incentivizes economic development. Crude oil and other natural resources are different. You can’t put any effort if there is no crude deposit in your state. 13% derivation to take care of environmental pollution is more than enough compensation for oil producing states.

ALTERNATEID:
You really need to stop the propaganda against Lagos and the tax bill. You made a fundamental error in your calculation by ascribing 56% of total VAT generated to Lagos state. You can’t use the current figure to calculate using the proposed rate. The proposed law has eliminated using headquarters payment as basis for calculating VAT generated by state. It will now be consumption based and as at today, we don’t have that figure. So, your calculation is entirely wrong as it is not based on any accurate data.

How are you sure that the 56% will change much after the proposed reform is adopted? What if it changes to 50% ? Why the hurry in the proposed reform? FIRS has the data to show us what the proposed change will look like, that is, what other states would have generated if companies paid VAT to the states rather than Lagos, why haven’t they showed us that data?

What’s the hurry to pass a bill that hasn’t been fully understood?

givedemwotowoto:
How are you sure that the 56% will change much after the proposed reform is adopted? What if it changes to 50% ? Why the hurry in the proposed reform? FIRS has the data to show us what the proposed change will look like, that is, what other states would have generated if companies paid VAT to the states rather than Lagos, why haven’t they showed us that data?

What’s the hurry to pass a bill that hasn’t been fully understood?

What if it changes to 20%? Why use an inaccurate figure to make your case when you know that the basis of computing what each state generates will change with the passage of the law? Why the false assumption?

The bill is open for debate at the National Assembly. If you have a concern or recommendation, attend the public hearing and submit your proposal. That’s the process of passing a bill into law. We don’t have 20 years to start consulting with every Tom, Dick and Harry. No. That’s not how reforms are done.

ALTERNATEID:
What if it changes to 20%? Why use an inaccurate figure to make your case when you know that the basis of computing what each state generates will change with the passage of the law? Why the false assumption?

What is embarrasing is that you lots have been claiming that the proposed reforms will help low VAT states generate more VAT, but now your comments are "what ifs". So you actually know LITTLE to NOTHING about the financial impact of the proposed reform?

I have presented accurate data of how oil revenue sharing compares with the proposed VAT reform, now present your own data if you have a contrary opinion. Don't come here with what ifs. This is an educated debate

ALTERNATEID:
You really need to stop the propaganda against Lagos and the tax bill. You made a fundamental error in your calculation by ascribing 56% of total VAT generated to Lagos state. You can’t use the current figure to calculate using the proposed rate. The proposed law has eliminated using headquarters payment as basis for calculating VAT generated by state. It will now be consumption based and as at today, we don’t have that figure. So, your calculation is entirely wrong as it is not based on any accurate data.

The above error aside, crude oil is a God given natural resources. It is God’s blessing to Nigeria and not the handiwork of anybody. VAT on the other hand is a consumption tax. The more the people of a state consume, the higher the VAT generated. All your state need to do to get more VAT revenue is to increase the consumption pattern of their states. It incentivizes economic development. Crude oil and other natural resources are different. You can’t put any effort if there is no crude deposit in your state. 13% derivation to take care of environmental pollution is more than enough compensation for oil producing states.

Bring your own data and let's debate like informed adults, which is what you should be doing rather than bring sentiments, the data above is accurate with the estimates. Lagos generated 56% VAT, and the oil revenue sharing is the way it is currently done. What's the hurry with this bill when we should be debating it?

ednut1:
Oil revenue are taxed under petroleum profits taxes not VAT. Your post is baseless .
For example Mtn generates 120billion VAT which is attributed to Lagos but the VAT came from the 36 states and FCT. This new bill will share it based on consumption

Shared under petroleum profits tax, so that changes what? Is it not revenue coming from oil wells in some states? Does this sound like a Kindergarten debate?

So MTN generates N120 billion VAT, what stops you from amending the law so that they can pay VAT to the states rather than Lagos? Why change the revenue sharing formula in such a hurry when we don't understand what this means financially, and at the same time, claiming it will help states get more revenue share? If you must make that claim, show how you arrived at such data. We need to see it and believe.

givedemwotowoto:
Shared under petroleum profits tax, so that changes what? Is it not revenue coming from oil wells in some states? Does this sound like a Kindergarten debate?

So MTN generates N120 billion VAT, what stops you from amending the law so that they can pay VAT to the states rather than Lagos? Why change the revenue sharing formula in such a hurry when we don't understand what this means financially, and at the same time, claiming it will help states get more revenue share? If you must make that claim, show you arrived at such data. We need to see it and believe.

the before and after was projected yesterday in the townhall done. You can search for it on Twitter. VAT is not paid to any state it belongs to FIRS/FG the companies are merely agent of collection . The reforms should not stop at VAT they should do more for oil generating states, like I said Akpabio should direct them to do this.

If you dont agree with the sharing formula then bring your own formula na. As per tax expert 😂

givedemwotowoto:
What is embarrasing is that you lots have been claiming that the proposed reforms will help low VAT states generate more VAT, but now your comments are "what ifs". So you actually know LITTLE to NOTHING about the financial impact of the proposed reform?

I have presented accurate data of how oil revenue sharing compares with the proposed VAT reform, now present your own data if you have a contrary opinion. Don't come here with what ifs. This is an educated debate

I responded to this👇

givedemwotowoto:
How are you sure that the 56% will change much after the proposed reform is adopted? What if it changes to 50% ? Why the hurry in the proposed reform? FIRS has the data to show us what the proposed change will look like, that is, what other states would have generated if companies paid VAT to the states rather than Lagos, why haven’t they showed us that data?

What’s the hurry to pass a bill that hasn’t been fully understood?

You started the “what if” argument and you turned around to blame it on me. Dude, I hate dishonest and disingenuous arguments. I’m done with you.

ALTERNATEID:
I responded to this👇

You started the “what if” argument and you turned around to blame it on me. Dude, I hate dishonest and disingenuous arguments. I’m done with you.

Look at the post below to see how it started. What is disingenuous is how you called my post "propaganda" when my calculation was based on existing data and circumstances. The title was clear and the information was presented as described in the title. You couldn't counter the argument with alternative data so you went ahead to call it "wrong" and "propaganda". Based on what? Show me your own data that changes my arguments.

You're really agitated. Your case is that of someone who is comfortable throwing shades at others but can't take one bit of it. You take zero responsibility. Zero accountability. 100% victim mentality. 100% entitlement mentality.

ALTERNATEID:
You really need to stop the propaganda against Lagos and the tax bill. You made a fundamental error in your calculation by ascribing 56% of total VAT generated to Lagos state. You can’t use the current figure to calculate using the proposed rate. The proposed law has eliminated using headquarters payment as basis for calculating VAT generated by state. It will now be consumption based and as at today, we don’t have that figure. So, your calculation is entirely wrong as it is not based on any accurate data.

The above error aside, crude oil is a God given natural resources. It is God’s blessing to Nigeria and not the handiwork of anybody. VAT on the other hand is a consumption tax. The more the people of a state consume, the higher the VAT generated. All your state need to do to get more VAT revenue is to increase the consumption pattern of their states. It incentivizes economic development. Crude oil and other natural resources are different. You can’t put any effort if there is no crude deposit in your state. 13% derivation to take care of environmental pollution is more than enough compensation for oil producing states.

givedemwotowoto:
nlfpmod Seun we need to ask the right questions and have an informed debate

You were all quiet about everything all these years till same govt brought it up for reform.
LOL.

BlackfireX:
You see this thing dey wan do... others go do there own o

Your VAT

Oboy how about others resources that is feeding this kwantiri

You see this madness eeeh wey balablu want start make SW no run o

Don't mind them. My oil revenue is "our" revenue but your VAT is "your" VAT.

FG takes over 45% of my oil revenue, but wants to take only 10% of VAT revenue because one state is generating a lot of it.

JagabanBorgu:
You were all quiet about everything all these years till same govt brought it up for reform.
LOL.

If you want to reform, reform everything, let everyone go and hustle with what they have

givedemwotowoto:
What is embarrasing is that you lots have been claiming that the proposed reforms will help low VAT states generate more VAT, but now your comments are "what ifs". So you actually know LITTLE to NOTHING about the financial impact of the proposed reform?

I have presented accurate data of how oil revenue sharing compares with the proposed VAT reform, now present your own data if you have a contrary opinion. Don't come here with what ifs. This is an educated debate

VAT: This will allow states in the North to have a rethink on Alcohol and Cigarettes.

givedemwotowoto:
If you want to reform, reform everything, let everyone go and hustle with what they have

You can continue to cry my friend.

1

ednut1:
Oil revenue are taxed under petroleum profits taxes not VAT. Your post is baseless .
For example Mtn generates 120billion VAT which is attributed to Lagos but the VAT came from the 36 states and FCT. This new bill will share it based on consumption

The bill did not explain how the consumption by states will be determined.