The National Economic Council (NEC), comprising Nigeria’s 36 state governors and led by Vice President Kashim Shettima, has advised withdrawing the current Tax Reforms Bill from the National Assembly. This recommendation was made during the council’s 145th meeting in Abuja on Thursday, October 31, 2024.
The council’s stance follows a presentation by Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, urging broader consultations with stakeholders to ensure alignment on the far-reaching impacts of the proposed reforms. Vice President Shettima emphasized that the tax reform initiatives from President Bola Ahmed Tinubu’s Renewed Hope Administration are intended to diversify national revenue sources, promote economic stability, and lessen the dependency on specific sectors. He noted that these reforms offer a pathway to address stakeholder concerns, particularly on VAT reforms and their implications for state-level revenues.
Oyo State Governor Seyi Makinde reiterated the NEC’s stance on the importance of unified support for the reforms. “There has been considerable misinformation surrounding the bill,” Makinde said, underscoring the need for more extensive consultations and consensus-building to foster understanding among all parties involved. He also pointed out Nigeria’s underperformance in key revenue areas and referenced a report from the Presidential Committee on Fiscal Policy and Tax Reforms, which highlighted the importance of equitable taxation, responsible borrowing, and sustainable spending.
Governor Umaru Zulum of Borno State confirmed the NEC’s recommendation to withdraw the bill to facilitate stakeholder engagement and consensus-building.
Previous Opposition to the Tax Reform Bill
The NEC’s recommendation to pause the Tax Reforms Bill is the latest obstacle for the proposal, which recently passed its first reading in the Senate. Earlier in the week, northern governors, along with traditional leaders and stakeholders from the region, raised concerns over the bill, particularly its derivation-based model for Value Added Tax (VAT) distribution among the country’s federal units. The model has drawn opposition due to concerns about how VAT revenue will be allocated across states.
Responding to this regional opposition, Oyedele, head of the Presidential Committee on Fiscal Policy and Tax Reforms, explained that the current VAT distribution model presents inequities that affect northern states as well as southern counterparts.
Current VAT Distribution Model
Under Section 40 of the VAT Act, VAT revenue is currently divided as follows: 15% to the Federal Government, 50% to the States and Federal Capital Territory (FCT), and 35% to Local Governments. Additionally, 20% of VAT revenue is allocated based on the derivation principle, which distributes funds based on the region where the VAT was generated.
While not explicitly defined in the VAT Act, other distribution considerations include a 50% allocation equally across states and a 30% distribution based on population. Additionally, a 4% collection fee goes to the Federal Inland Revenue Service (FIRS), with a 2% fee provided to the Nigerian Customs Service (NCS) for VAT collected on imports.
