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Nigeria’s House of Representatives Passes President Tinubu’s Tax Reform Bills Amid Northern Lawmakers’ VAT Revenue Concerns

Nigeria’s House of Representatives has passed President Bola Tinubu’s tax reform bills, setting the stage for a major overhaul of the country’s fiscal system. The decision, however, has sparked heated debates, particularly from northern lawmakers who argue that the proposed changes to Value Added Tax (VAT) revenue-sharing could disproportionately disadvantage their states.

With the new reforms, Nigeria aims to streamline tax collection, boost government revenue, and incentivize economic growth. However, the potential redistribution of VAT revenue has triggered resistance, raising questions about regional fiscal equity and the broader economic impact on states with lower VAT contributions.

Key Components of the Tax Reform Bills

The approved tax reform package includes four critical bills aimed at modernizing Nigeria’s taxation system:

1. Nigeria Tax Bill 2024 – Establishes a robust legal framework to enhance tax compliance and revenue generation.
2. Tax Administration Bill – Introduces new guidelines for efficient tax collection, aiming to reduce evasion and disputes.
3. Nigeria Revenue Service Establishment Bill – Replaces the Federal Inland Revenue Service (FIRS) with the Nigeria Revenue Service (NRS) for better tax administration.
4. Joint Revenue Board Establishment Bill – Creates a tax tribunal and an ombudsman to resolve tax-related conflicts.

A major highlight of the reforms is the VAT revenue-sharing adjustment, which shifts the formula from the current 50% (equal share), 30% (population-based), and 20% (derivation) to a more derivation-focused structure—60% derivation, 20% population, and 20% equal sharing. This revision aims to reward states generating more VAT revenue but has drawn sharp criticism from northern lawmakers who see it as disproportionately benefiting economically stronger states like Lagos, Rivers, and Ogun.

Northern Lawmakers Oppose VAT Redistribution

The proposed VAT revenue formula has ignited opposition among northern governors and lawmakers, who argue that the reform favors states with higher commercial activity while putting resource-dependent states at a disadvantage.

Several lawmakers from the Arewa Consultative Forum (ACF) have voiced concerns, emphasizing that the North contributes significantly to Nigeria’s economy through agriculture and solid minerals but may not generate as much VAT as commercial hubs in the South. They warn that the new formula could widen economic disparities, urging a more balanced revenue-sharing model.

Government’s Justification and Response

The Tinubu administration insists that the tax reform is designed to encourage fiscal responsibility by incentivizing states to expand economic activities. Presidential adviser Taiwo Oyedele clarified that essential goods such as food and medicine would remain VAT-exempt, mitigating the burden on ordinary Nigerians. Additionally, the government plans to gradually increase VAT to 12.5% by 2026, aiming to boost revenue without fueling inflation.

According to official estimates, Nigeria’s tax-to-GDP ratio currently stands at 10.86%, one of the lowest in Africa. The proposed reforms seek to push this figure closer to the regional average of 16-18%, ensuring a more sustainable fiscal structure.

Economic and Political Implications

The passage of these tax bills signals a fundamental shift in Nigeria’s economic policy, with far-reaching consequences for both businesses and state governments. While economists argue that a derivation-based VAT model will drive competitiveness and industrialization, political analysts caution that regional tensions could escalate if the concerns of northern lawmakers are not adequately addressed.

Next Steps: What Lies Ahead?

With the House of Representatives’ approval, the tax reform bills will now proceed to the Senate for final deliberations. The outcome of these discussions could shape Nigeria’s economic landscape for years to come.

As stakeholders continue to debate the merits and drawbacks of the new VAT-sharing model, the government faces a delicate balancing act—ensuring fiscal sustainability while maintaining national unity and economic fairness.

Conclusion

The passage of President Tinubu’s tax reform bills represents a historic moment in Nigeria’s fiscal policy, aiming to modernize tax collection and drive economic efficiency. However, the fierce opposition from northern lawmakers underscores the complex realities of revenue allocation in a diverse federation like Nigeria.

With the Senate vote looming, the coming weeks will determine whether these reforms proceed as planned or undergo amendments to accommodate regional concerns. One thing remains clear—Nigeria’s tax landscape is on the verge of a major transformation.