Governors propose new VAT sharing formula, okay tax bills

The Nigeria Governors’ Forum has reiterated its strong support for the comprehensive reform of Nigeria’s outdated tax laws and approved a revised Value Added Tax distribution formula, with 50% allocated based on equality.

In a communique issued by its Chairman, Kwara State Governor, AbdulRahman AbdulRazaq, the NGF expressed its support for modernizing the country’s tax system.

The statement, shared with journalists in Abuja after the subnational consultation and engagement with the Presidential Tax Reform Committee on Thursday, highlighted the importance of updating the tax framework to improve fiscal stability and align with global best practices.

Following approval from the Federal Executive Council, President Bola Tinubu forwarded four tax reform bills to the National Assembly for consideration in October 2024.

The Federal Government explained that the bills aim to revamp the nation’s tax system.

The proposed bills are 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 bills sparked diverse opinions across the country with northern leaders opposed to its passage over the Value Added Tax provisions.

On October 29, the Northern Governors Forum opposed the proposed tax amendment bills.

In a communique issued after a joint meeting with the Northern Traditional Rulers Council at the Government House in Kaduna, the governors called on the National Assembly to reject any bill that could threaten the welfare of their citizens.

Additionally, on October 31, the National Economic Council advised Tinubu to promptly withdraw the Tax Reforms Bills from the National Assembly to facilitate broader consultations and consensus-building.

Prominent critics, such as the 2023 Peoples Democratic Party Presidential candidate, former Vice President Atiku Abubakar, Chairman of the PDP Governors Forum, Bauchi State Governor, Bala Mohammed, Borno State Governor Babagana Zulum, and former Sokoto State Governor Aminu Tambuwal, among others, also raised concerns about the bill’s potential socioeconomic impact on the northern region, which is already grappling with economic difficulties, high poverty levels, and security challenges.

On the other hand, southern leaders and lawmakers backed the reforms, believing they could lead to positive changes.

Notably, on December 5 and 10, South-South Senators and leaders of the Southern caucus in the House of Representatives expressed strong support for the passage of the tax reform bills, stating that they are beneficial for Nigeria and people-oriented.

Additionally, several Southern leaders, including elder statesman and Pan Niger- Delta Forum leader, Chief Edwin Clark, Chairman of the South-West Governors Forum and Lagos State Governor Babajide Sanwo-Olu, former Bayelsa State Governor, Senator Henry Dickson, and the pan-Yoruba socio-political organization, Afenifere, along with other groups and individuals, have consistently expressed full support for the tax reform bills.

Despite the trenchant opposition, the Senate passed the four tax bills for a second reading through voice votes last November.

However, the House of Representatives suspended the debate on the Tax Reform Bills indefinitely following mounting pressure from the 19 governors of northern states.

The planned debate was called off in a memo signed by the Clerk of the House of Representatives, Dr Yahaya Danzaria, as 73 northern lawmakers kicked against the bills.

In response to calls for broader consultation, the Chairman of the Presidential Committee on Fiscal and Tax Reforms, Taiwo Oyedele and his team sustained engagement with the stakeholders across the country to drive public support and ensure the passage of the bills by the National Assembly.

Rising from its engagement with the Presidential Committee on Fiscal and Tax Reforms in Abuja on Thursday, the NGF endorsed an updated VAT distribution formula.

The governors proposed that the VAT revenue should be shared 50 per cent based on equality, 30 per cent on derivation and 20 per cent based on population to guarantee a fair distribution of resources.

The communique read in part, “We, members of the Nigeria Governors’ Forum and presidential tax reform committee convened on the 16th of January 2025 to deliberate on critical national issues, including the reform of Nigeria’s fiscal policies and tax system, and arrived at the following resolutions:

“The Forum reiterated its strong support for the comprehensive reform of Nigeria’s archaic tax laws. Members acknowledged the importance of modernizing the tax system to enhance fiscal stability and align with global best practices.

“The Forum endorsed a revised Value Added Tax sharing formula to ensure equitable distribution of resources: 50 per cent based on equality, 30 per cent based on derivation, and 20 per cent based on population.”

The NGF also suggested that no terminal clause should be applied to the Tertiary Education Trust Fund, the National Agency for Science and Engineering Infrastructure, and the National Information Technology Development Agency in the allocation of development levies in the bills.

It continued, “Members agreed that there should be no increase in the VAT rate or reduction in Corporate Income Tax at this time, to maintain economic stability.

“The Forum advocated the continued exemption of essential goods and agricultural produce from VAT to safeguard the welfare of citizens and promote agricultural productivity.

“The meeting recommended that there should be no terminal clause for TETFUND, NASENI, and NITDA in the sharing of development levies in the bills

“The meeting supports the continuation of the legislative process at the National Assembly that will culminate in the eventual passage of the Tax Reform Bills.”

The Federal Government expressed its satisfaction with the NGF’s support for the bills and counter-proposal on the VAT formula.

Speaking in an interview with The Punch, the Minister of Information and National Orientation, Alhaji Muhammed Idris, noted that the final decision on the reform bills lies with the National Assembly.

He stated, “We are pleased to note the support of the governors for the tax reforms and their counter-proposal of 50 per cent equality for the sharing of VAT revenue.

“As rightly acknowledged by the governors, the final decision rests with the National Assembly who will consider all the inputs and submissions received including a public hearing.”

Welcoming the governors’ stance on the tax bills, the member representing Ikorodu Federal Constituency, Lagos State, Babajimi Benson described the development as a good day for Nigeria

Speaking with The Punch, Benson said, “We are happy to hear that our governors have embraced the tax bills, which are aimed at sanitising the nation’s tax system.

“With this development, we are waiting for the bills to be listed for debate and we will gladly debate them on the floor of the House of Representatives.”

His Bauchi State counterpart and member representing Darazo/Ganjuwa Federal Constituency, Bauchi State, Mansur Soro, was less optimistic, saying the various caucuses would meet to review their position on the controversial bills.

Soro, a member of the Peoples Democratic Party, said, “I believe the various caucuses in the House will eventually meet to review the developments on the tax reform bills and come up with their positions.”

When asked when the bills are likely to be debated, the lawmaker responded, “The decision on when to debate them lies with the Speaker and the Committee on Rules and Business. Deciding the fate of the bills is that of the entire House.”

Aliyu Mustapha (PDP, Kaduna) echoed Soro, stating that more engagements on the bills are likely.

“The position of the National Assembly has been very consistent as the people’s representatives. Our position ab initio was the need to widen consultations to agree and disagree, study all concerns, and address them amicably. The meeting of the Governors Forum is just one of those engagements.
“The National Assembly will surely do the necessary due diligence on the bills through the established procedure,” Mustapha, who represents Ikara/Kubau Federal Constituency said.