The Nigeria Tax reform is without doubt slowly and surely President Bola Tinubu is silently embarking on restructuring of some keys areas of our nationhood as can be seen on Local Government Autonomy, continuation of power sector reforms and most importantly and controversially the tax reform bills.
Some few months ago when the President forwarded four bills to the National Assembly many Nigerians did not pay so much attention to those bills. The four bills were (1) Nigeria Tax Bill 2024 (11) Nigeria Tax Administration Bill 2024 (111) Nigeria Revenue Service (Establishment) Bill 2024 and(1V) Joint Revenue Board (Establishment) Bill 2024.
While lot of attention and controversy have been on some parts of the first bill, all bills are important and come with serious implications. For example, the establishment of Nigeria Revenue Service will have serious implications for the Nigeria Customs Service and will see to the end of Federal Inland Revenue Service.
Now to the controversial VAT aspect of the Nigeria Tax Bill 2024 which have pitted a lot of people especially from the Northern Region against Mr. President. In the new bill, VAT rate is expected to jump to 10% by 2025, 12.5% between 2026 to 2029 and 15% by 2030. VAT is now expected to be shared by derivation principle between all tiers of government. The sharing formula in use now is 15% for FG,50% for State Governments and FCT, and 35% Local Government Areas.
Under the existing model the share of states is shared using a ratio of 50:30:20,50% for equality,30% for population and 20% for derivation.
The proposed model under the new bill is 10% for FG,55% for states and FCT and 35% for Local Government Areas. States are to use the sharing ratio of 20:20:60 for equality, population and derivation respectively in sharing the share.
The controversial aspect of the raising of the derivation to 60% as many states in both Northern and Southern Region of the country with less formal economy and less VAT paid to the Central purse could be impacted negatively in the long run except such states improve their economy and tax base.
Records available shows that only Lagos, FCT, Rivers, Oyo and Ogun paid generate about 80% of the VAT income of Nigeria yearly. While many states in the North have good economy these economies are majorly informal and as a result not VATable.
Governors Babagana Zulum and Dauda Lawal of Zamfara have openly voiced out that the proposed VAT regime can make their respective states to be unable to pay salaries.
This should not be so.Zamfara for example has huge Gold deposit in Anka which is surface level, the state Government should leverage on this and allow for institutional mining instead of artisanal mining.
The Borno Governor has a huge fish market in Baga that can be well formalized to increase its VAT contribution. All states in the North can look for inspiration from Netherlands make the animal husbandry formal, produce dairy products and yoghurt (Rufaidah yoghurt is an inspiration) and get huge VAT from all these.
There are many untapped potentials across all states of the Federation. On the issue of derivation being 60% I believe in the interest of National Unity and cohesion the percentage should be reduced to between 40% and 50% as so much stress economically in the long run on many states can have a negative spill over effects all over the country.
It will not be in the overall interest of the country for agricultural produce that have not been processed to be subjected to VAT as been advocated by some people in some part of the country as this will lead to food inflation.
In conclusion these bills are of benefit to the whole country in the short term and long term but there should be more deliberations and it should not be seen as North vs South discussion.At the end of the day I am sure that there will be a middle ground between both sides which will be acceptable to all.
Edited by : Adio Muyideen
