Nigeria Govs propose new VAT sharing formula, okay tax bills
The Nigeria Governors’ Forum (NGF) has reiterated its support for the urgent overhaul of Nigeria’s outdated tax laws, approving a new formula for the distribution of Value Added Tax (VAT) revenues, which will allocate 50% based on equality.
This reform proposal is part of the NGF’s broader efforts to modernize the country’s tax system.
In a statement issued by its chairman, AbdulRahman AbdulRazaq, the Governor of Kwara State, the NGF emphasized the need for tax system updates that align with global best practices, to enhance fiscal stability.
The statement was shared after a meeting with the Presidential Tax Reform Committee in Abuja on Thursday. The discussions focused on improving Nigeria’s fiscal policies through a more modern tax framework.
Following the approval by the Federal Executive Council, President Bola Tinubu presented four tax reform bills to the National Assembly in October 2024.
These bills are intended to overhaul the tax system and include the Nigeria Tax Bill 2024, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill.
However, the proposed reforms have faced opposition, particularly from northern leaders who object to provisions related to VAT distribution. On October 29, the Northern Governors Forum opposed the bills, especially the VAT aspects, citing concerns about their impact on the welfare of their people.
Furthermore, on October 31, the National Economic Council advised President Tinubu to withdraw the bills temporarily for further consultations.
Notable figures, including Atiku Abubakar, the 2023 PDP presidential candidate, and several other northern governors, voiced concerns about the socioeconomic implications of the proposed tax reforms, particularly in the north, where high poverty levels and security challenges are already pressing issues.
In contrast, leaders and lawmakers from the southern part of Nigeria have been largely supportive of the reforms, seeing them as an opportunity for positive change.
For instance, on December 5 and 10, South-South Senators and members of the Southern caucus in the House of Representatives strongly backed the proposed tax reforms.
Prominent southern leaders, including Chief Edwin Clark and Governor Babajide Sanwo-Olu of Lagos State, have also expressed full support.
Despite opposition, the Senate passed the four tax reform bills for a second reading last November.
However, the House of Representatives postponed its debate indefinitely due to mounting pressure from 19 northern governors and 73 northern lawmakers who opposed the bills.
The debate was suspended via a memo from the House Clerk, Dr. Yahaya Danzaria.
In response to calls for broader consultation, the Presidential Committee on Fiscal and Tax Reforms, led by Taiwo Oyedele, has continued to engage stakeholders across the country to build wider support for the reforms.
At a meeting on January 16, 2025, the NGF endorsed a revised VAT distribution formula, which proposes sharing VAT revenues as follows: 50% based on equality, 30% based on derivation, and 20% based on population.
This formula aims to ensure a more equitable distribution of resources across the country. The NGF also suggested that no terminal clauses should be applied to key development funds, such as the Tertiary Education Trust Fund (TETFUND), the National Agency for Science and Engineering Infrastructure (NASENI), and the National Information Technology Development Agency (NITDA).
Additionally, the NGF urged against increasing VAT rates or reducing Corporate Income Tax at this time, to maintain economic stability.
They also advocated for the continued exemption of essential goods and agricultural products from VAT to protect citizens and encourage agricultural productivity.
The Federal Government has expressed satisfaction with the NGF’s support and their proposed VAT formula. Minister of Information and National Orientation, Alhaji Muhammed Idris, noted that while the governors’ proposal is acknowledged, the final decision rests with the National Assembly, which will consider all inputs before proceeding with a public hearing.
In response to these developments, Babajimi Benson, the member representing Ikorodu Federal Constituency in Lagos State, praised the governors’ support for the tax bills, describing it as a positive move for Nigeria. Similarly, Bauchi State’s Mansur Soro expressed cautious optimism, indicating that further caucus meetings would be held to discuss the bills’ potential impact.
The Chief Economist of SPM Professionals, Paul Alaje, supported the NGF’s stance on the VAT formula, calling it a reasonable approach. He emphasized that the distribution based on equality would help prevent economic disparities between states.
Finally, the Director-General of the Nigeria Employers’ Consultative Association, Adewale-Smatt Oyerinde, expressed support for reforms that benefit all stakeholders, emphasizing the importance of sustainable growth. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, also welcomed the NGF’s proposal as a necessary political consensus for advancing tax reform.
Despite these differing views, experts agree that the reforms could encourage states to contribute more actively to national revenue generation, promoting creativity and new sources of income.
However, concerns remain over the potential for regional imbalances, particularly in urban versus rural areas.