Tax reforms: Governors reject VAT hike, propose new sharing formula

The Nigeria Governors’ Forum (NGF) yesterday proposed allocating 30 per cent of Value Added Tax (VAT) revenue based on derivation, instead of 60 per cent. The Forum’s resolution was in the wake of the controversy trailing the Tax Reform Bills currently before the National Assembly. The NGF also proposed sharing VAT revenue with 50 per […]

The Nigeria Governors’ Forum (NGF) yesterday proposed allocating 30 per cent of Value Added Tax (VAT) revenue based on derivation, instead of 60 per cent.

The Forum’s resolution was in the wake of the controversy trailing the Tax Reform Bills currently before the National Assembly.

The NGF also proposed sharing VAT revenue with 50 per cent based on equality and the remaining 20 per cent based on population to ensure an equitable distribution of resources.

The formula proposed by the bills initially suggested sharing 60 per cent of VAT revenue based on derivation, meaning states would receive funds proportional to the VAT generated within their territories. This had been a major source of pushback from governors and lawmakers, particularly from the North.

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In a communiqué issued yesterday at the end of its subnational consultations and engagement with the Presidential Tax Reform Committee, the chairman of the NGF and governor of Kwara State, AbdulRahman AbdulRazaq, said the governors reiterated their “strong support for the comprehensive reform of Nigeria’s archaic tax laws.”

He said other resolutions from the meeting included a consensus “that there should be no increase in the VAT rate or reduction in Corporate Income Tax (CIT) at this time, to maintain economic stability.”

Section 146 of the Nigeria Tax Bill provides for a gradual increase in the VAT rate from the current 7.5% to 10% in 2025, 12.5% in 2026, and further increments until it reaches 15% by 2030.

“The Forum advocated for the continued exemption of essential goods and agricultural produce from VAT to safeguard the welfare of citizens and promote agricultural productivity,” the communiqué read in part.

The NGF also expressed its support for “the continuation of the legislative process at the National Assembly that will culminate in the eventual passage of the Tax Reform Bills.”

It acknowledged the importance of modernising the tax system to enhance fiscal stability and align with global best practices.

Similarly, the NGF “recommended that there should be no terminal clause for TETFUND, NASENI and NITDA in the sharing of development levies in the bills.”

The bills had proposed a terminal clause for the Tertiary Education Trust Fund (TETFUND), the National Agency for Science and Engineering Infrastructure (NASENI), and the National Information Technology Development Agency (NITDA), with their funding redirected to the administration’s Nigeria Education Loan Fund (NELFUND).

The Academic Staff Union of Universities (ASUU) and other stakeholders had also opposed the proposed tax reform bills, particularly the phasing out of TETFUND, cautioning that dismantling TETFUND would reverse decades of progress in Nigeria’s public tertiary education system.

 

We’ll woo lawmakers – Gov Sule

Reacting to the developments, Nasarawa State Governor Abdullahi Sule last night said the governors would now seek the buy-in of their legislators to ensure the bills’ passage based on the consensus reached.

“We will also have an executive session with our legislators to get the bills passed. The bigger picture is to get it passed for the interest of Nigeria in order to attract investment into the country. The tax bills are more than the VAT matters,” he said in an interview on Channels TV.

He said the position taken by the governors has established political equilibrium, with the presidency, northern governors, and northern elites now on the same page.

“This will settle the dust in the North because most people in the region have been led to believe that there will be additional taxes. If you look at most of the debates, people are saying, ‘We don’t want additional taxes.’ By this position, we are saying there are no additional taxes,” Sule said.

On the claims that the initial pushback was an attack on the Presidency or a North-versus-South issue, Sule explained that the concerns raised were intended to protect the presidency.

“For people like us, if ordinary people began to feel the punch of the economic situation, the president would look bad. So, those of us who brought up these issues are the true lovers of the president. It was not an attack. It would have driven up inflation, affecting all Nigerians, whether in the North or South,” he said.

He commended President Tinubu and his team for showing flexibility and shifting grounds.

 

Ndume welcomes NGF’s resolution

Senator Ali Ndume (Borno South) yesterday said the NGF’s decision would open the door for broader contributions and public input during the legislative process.

“This is a welcome development, and it now allows the National Assembly to review the reform bills with the suggestions made by the Governors’ Forum in mind,” Ndume told Daily Trust last night.

“We need a better document that truly reforms the tax system, which is long overdue for change. The agreement to avoid a VAT increase and reduce the derivation component, subject to renegotiation, is a positive step.

“The doors for negotiation are now open, and other interest groups should be given the opportunity to contribute during the public hearing,” he said.

Addressing his opposition to aspects of the tax reform proposals, Ndume said his stance was not against President Tinubu personally but against policies he believed were detrimental to Nigerians.

Ndume dismissed suggestions of a rift between himself and the presidency, stating that his advocacy was rooted in his duty to represent public interests.