Nigeria's Governors Endorse Tax Reform Bills and Propose New VAT Sharing Formula

 Nigeria's Governors Endorse Tax Reform Bills and Propose New VAT Sharing Formula

In a significant development for Nigeria's fiscal policy, the 36 state governors, under the aegis of the Nigeria Governors' Forum (NGF), have expressed robust support for the ongoing legislative process of the Tax Reform Bills currently before the National Assembly.This endorsement marks a pivotal step toward modernizing Nigeria's tax system to enhance fiscal stability and align with global best practices.





Revised Value Added Tax (VAT) Sharing Formula

Central to the governors' support is the proposal for a revised Value Added Tax (VAT) sharing formula aimed at ensuring a more equitable distribution of resources among the states.The proposed formula allocates VAT revenue as follows:

50% based on equality: Ensuring that each state receives an equal share of the VAT revenue, promoting fairness across the federation.

  • 30% based on derivation: Allocating a portion of the revenue to states based on the volume of economic activities and resources extracted from their regions, incentivizing local economic development.

  • 20% based on population: Distributing a share of the revenue according to the population size of each state, addressing demographic disparities.

This formula seeks to balance the need for equality with the recognition of states' contributions and demographic factors.

Governors' Recommendations and Stance

The governors have also recommended the following measures to further enhance the tax reform process:

  • Exemption of Essential Goods and Agricultural Produce from VAT: To safeguard the welfare of citizens and promote agricultural productivity, the governors advocate for the continued exemption of essential goods and agricultural products from VAT.

  • No Increase in VAT Rate or Reduction in Corporate Income Tax (CIT): To maintain economic stability, the governors agree that there should be no increase in the VAT rate or reduction in CIT at this time.

  • No Terminal Clause for Development Funds: The governors recommend that there should be no 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) in the sharing of development levies in the bills.

These recommendations reflect a commitment to ensuring that the tax reforms do not adversely affect critical sectors such as education, science, and technology.




Implications for Nigeria's Fiscal Policy

The governors' endorsement and proposed adjustments to the VAT sharing formula are expected to have significant implications for Nigeria's fiscal policy:

  • Enhanced Fiscal Stability: By modernizing the tax system and ensuring a more equitable distribution of resources, the reforms aim to strengthen Nigeria's fiscal position.

  • Promotion of Economic Development: The derivation-based allocation incentivizes states to boost local economic activities, potentially leading to increased investments and job creation.

  • Addressing Regional Disparities: The proposed formula seeks to balance the interests of various regions, particularly addressing concerns from states that felt disadvantaged under the previous system.

As the Tax Reform Bills progress through the legislative process, the support and recommendations from the NGF are expected to play a crucial role in shaping the final outcomes, with the potential to transform Nigeria's tax landscape for the better.

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