Tax reform must balance equity, contribution, population – Economist

In a bid to transform Nigeria’s tax system and boost revenue generation, an economist and policy analyst, Augustine Adebayo Kutu, has called for a more balanced approach to the proposed Value Added Tax (VAT) sharing formula. Kutu, an Assistant Professor at the University of Western Ontario, Canada, emphasized that while tax reforms are essential for […]

In a bid to transform Nigeria’s tax system and boost revenue generation, an economist and policy analyst, Augustine Adebayo Kutu, has called for a more balanced approach to the proposed Value Added Tax (VAT) sharing formula.

Kutu, an Assistant Professor at the University of Western Ontario, Canada, emphasized that while tax reforms are essential for economic diversification, the current formula has sparked regional tensions due to disparities in revenue allocation. He proposed a revised model that allocates 40% of VAT revenue based on equality, 40% on derivation, and 20% on population—ensuring fairness while incentivizing states to expand their tax base.

“Nigeria must adopt a tax framework that reflects economic contributions, promotes equity, and accounts for demographic realities,” Kutu stated.

The proposed tax reform bill, introduced by the present administration, aims to modernize Nigeria’s fiscal policies. However, the VAT sharing formula, which favors states that generate more revenue, has drawn criticism from some quarters, particularly in the northern and southern regions, where concerns about economic disparities have been raised.

Beyond restructuring the tax formula, Kutu stressed the need for governments at all levels to leverage technology for efficient tax assessment, collection, and accounting. He highlighted the importance of capturing revenues from digital businesses, such as social media platforms and music streaming services, to enhance Nigeria’s fiscal sustainability.

As discussions on the tax reform bill continue, experts argue that a balanced approach will not only ensure fairness but also encourage tax compliance, ultimately strengthening Nigeria’s economic foundation.