Tax reform: Shekarau-led group rejects derivation formula

The League of Northern Democrats (LND) under the leadership of former Kano State Governor, Senator Ibrahim Shekarau, has rejected the derivation formula proposed in the ongoing tax reform discussions, warning it could deepen regional inequality if not clearly defined. LND spokesman, Dr Ladan Salihu, said this in a statement on Sunday. The league, however, commended […]

The League of Northern Democrats (LND) under the leadership of former Kano State Governor, Senator Ibrahim Shekarau, has rejected the derivation formula proposed in the ongoing tax reform discussions, warning it could deepen regional inequality if not clearly defined.

LND spokesman, Dr Ladan Salihu, said this in a statement on Sunday.

The league, however, commended the Nigeria Governors’ Forum (NGF) for endorsing a revised Value Added Tax (VAT) sharing formula of 50 per cent based on equality, 30 per cent on derivation, and 20 per cent on population.

Daily Trust reports that the tax reform bills have generated heated debates across the country, with majority of the push backs coming from the North.

Many governors and some leaders from the region contested that the tax reform bills, which also led to open confrontations in both chambers of the National Assembly, was meant to favour Lagos State and other narrow interests, as well as to shortchange the North.

In it’s statement, the group said, “LND welcomes the forum’s (NGF) recognition of the need for comprehensive tax reforms to modernize Nigeria’s fiscal system, enhance stability and align with global best practices. However, there is one critical issue overlooked in the Governors Forum’s communique that requires urgent resolution before LND can fully endorse the reforms: the definition of ‘derivation’.

“For any tax reform to achieve equity, fairness and sustainability, ‘derivation’ must be clearly and unambiguously defined to mean the place of consumption. This was a cornerstone of LND’s recommendations and remains non-negotiable.

“Without this definition, the proposed increase of derivation to 30% risks perpetuating regional inequalities, where certain areas benefit disproportionately at the expense of others, particularly the North.

“The absence of clarity on this matter undermines the principles of equity that the reform is said to seek to achieve in the first place,” Salihu said.

He said the LND is convinced that tying derivation to the area of consumption will ensure that resources are distributed based on actual economic activity and contribution and that this approach not only aligns with the realities of modern taxation but also promotes accountability and incentivizes regions to develop their economic capacities.
He said, “Until this critical issue is resolved, LND will withhold its full support for the tax reform agenda. We urge the NGF and the Presidential Tax Reform Committee to incorporate this fundamental clarification, and all other amendments made by the LND, including the inheritance tax clause, into their framework to guarantee that the reforms deliver equitable and beneficial outcomes for all Nigerians.”