In a significant move towards overhauling Nigeria’s tax system, the Nigeria Governors’ Forum (NGF) has expressed strong support for President Bola Tinubu’s tax reform initiatives. Following a comprehensive meeting with the Presidential Tax Reform Committee, the governors proposed a revised Value Added Tax (VAT) sharing formula aimed at ensuring a more equitable distribution of resources across the nation.
Proposed VAT Sharing Formula
The NGF’s communique, issued by its Chairman and Kwara State Governor, AbdulRahman AbdulRazaq, outlined the new VAT distribution framework:
- 50% based on equality: Ensuring that all states receive an equal share of the VAT revenue, promoting uniform development opportunities.
- 30% based on derivation: Allocating funds in proportion to the amount of VAT generated by each state, incentivizing local revenue generation and economic activities.
- 20% based on population: Distributing funds according to the population size of each state, addressing the varying needs of densely populated areas.
This proposed formula marks a departure from previous distribution methods, aiming to balance equity, economic contribution, and demographic considerations.
Context of the Tax Reform Bills
In October 2024, President Tinubu forwarded four tax reform bills to the National Assembly, following recommendations from the Presidential Committee on Fiscal and Tax Reforms led by Taiwo Oyedele. The bills include:
1. Nigeria Tax Bill 2024: Establishing a comprehensive fiscal framework for taxation in the country.
2. Tax Administration Bill: Providing a clear legal structure for managing taxes to reduce disputes and enhance efficiency.
3. Nigeria Revenue Service (Establishment) Bill: Aiming to repeal the Federal Inland Revenue Service Act and create the Nigeria Revenue Service.
4. Joint Revenue Board (Establishment) Bill: Proposing the creation of a tax tribunal and a tax ombudsman to address tax-related matters.
These legislative efforts are designed to modernize Nigeria’s tax system, enhance fiscal stability, and align with global best practices.
Regional Responses and Concerns
The proposed tax reforms have elicited varied responses across Nigeria’s regions. Notably, the Northern States Governors’ Forum previously opposed aspects of the reform, particularly the shift towards a derivation-based VAT distribution model. Their concerns centered on potential disadvantages to northern states, which might receive reduced allocations under the new formula. They argued that such changes could exacerbate existing economic disparities between the northern and southern regions.
Despite these concerns, the NGF’s recent endorsement of the revised VAT sharing formula indicates a move towards consensus, balancing the interests of different regions to foster national cohesion and equitable development.
Maintaining Economic Stability
In their communique, the governors emphasized the importance of maintaining economic stability during the reform process. They agreed that there should be no increase in the VAT rate or reduction in Corporate Income Tax at this time. Additionally, they advocated for the continued exemption of essential goods and agricultural produce from VAT to safeguard citizens’ welfare and promote agricultural productivity.
Next Steps
The NGF’s support for the continuation of the legislative process underscores a commitment to comprehensive tax reform. The proposed bills are expected to undergo further deliberation in the National Assembly, with opportunities for public input and stakeholder engagement. This collaborative approach aims to ensure that the reforms are inclusive, equitable, and conducive to Nigeria’s long-term economic growth.
As Nigeria navigates these significant fiscal changes, the alignment between federal initiatives and state-level support will be crucial in achieving a more efficient and fair tax system, ultimately benefiting all Nigerians.
