North vs FG: The fight over Nigeria’s tax reform bill

A battle is brewing between Northern political elites and the Federal Government over proposed tax reforms that could reshape Nigeria’s revenue distribution. At the center of the controversy is a change to the Value Added Tax (VAT) system, sparking concerns from various quarters.

The heart of the dispute is the proposed amendment to the VAT Act, which would allocate VAT revenue based on the “derivation principle.” Under this system, VAT funds would be distributed to states based on where goods and services are consumed and where businesses generating the tax are headquartered. Northern leaders argue that this model would unfairly disadvantage them, as many major companies are based in Southern states.

The North’s Concern
Northern governors fear the reform would drastically reduce their share of VAT revenue. They argue that the South, where most consumption occurs, would receive a larger portion, further widening the economic gap between regions.

Senator Kawu Samaila of Kano South District has voiced these concerns, stating that issues facing the North extend beyond mere tax reforms and need to be addressed through comprehensive dialogue.

“The challenges affecting economic development in the North go beyond mere tax reforms. It is essential for us to engage in meaningful discussions. Our critical issues in the region extend beyond VAT,” he said.
Dr. Majeed Dahiru, a public affairs analyst, believes that the opposition from Northern governors is not a blanket rejection of the reform but a direct challenge to the shift in VAT distribution.

“The Northern governors, along with traditional and regional leaders, have concerns about the distribution of VAT based on a derivation model. This means some VAT may be returned to the regions where it was generated. This is their core issue. I don’t think they oppose expanding the tax base or increasing taxes, which would boost their revenues. The concern is that using the derivation model for revenue distribution could result in some states receiving less than they currently do.

“However, the proposal to distribute VAT—a consumption tax—based on the derivation principle represents one of the most progressive pieces of legislation in Nigeria’s history regarding revenue allocation. I would recommend expanding this approach to include corporate and personal income taxes,” he explains.

The Case for the Reform
While the Northern elite see the reform as a threat, others argue that the current system is unfair. Advocates of the change believe VAT should reflect actual consumption locations. Some Northern states prohibit certain goods like alcohol, and proponents suggest they should not benefit from VAT generated by products they do not allow.

Baba Yusuf, a policy analyst and former Managing Director of NAHCO Free Trade Zone, expressed disappointment in the Northern elite’s stance, calling it a transactional approach that prioritizes short-term gains over long-term progress. He emphasized that the reform’s reliance on the derivation principle could stimulate productivity and fairness by aligning revenue with actual consumption.

“I am disappointed with the mindset and outlook of the Northern elite, particularly the Northern governors. Their approach is highly transactional rather than strategic. I advocate for resource allocation based on derivation, as it drives productivity. This rent-seeking and commission-collection attitude cannot move us forward; it will only push out those who have no business in government.

“Leaders must adopt a mindset of value creation, protection, and innovation to effectively guide their people. With all due respect, there should be some forward-thinking among them. In my view, the opposition to the tax reform bill is not in the best interest of Northerners or Nigerians.”

A Political Debate

Meanwhile, the debate has taken on a political tone. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise and former Director General of the Lagos Chamber of Commerce and Industry (LCCI), acknowledged the political undertones.

He said, “in my view, this issue is more political than economic. It’s a natural reaction. They are proposing an amendment that would disadvantage you, so it’s understandable to reject it. I’m not surprised by this reaction, as the bulk of the VAT is generated from the southern part of the country. The percentage contribution from the northern region is not significant.

Therefore, if the allocation favors derivation, it will naturally benefit the South. That’s why I believe it’s more of a political issue that we need to manage carefully. Personally, I think we should let sleeping dogs lie and leave the situation as it is,” Dr. Yusuf added.

A Growing Distrust
As the debate intensifies, some activists, like Dr. Ibrahim Zikirullahi, Executive Director of the Resource Centre for Human Rights and Civic Education (CHRICED), argue that the opposition to the reforms is symptomatic of larger issues: widespread public distrust in the government.

“We face several pressing issues, including the removal of subsidies and the devaluation of the Naira, which remain unresolved. Electricity charges are excessively high. From telephone calls to everyday necessities, nothing is easy in this country. If we examine the so-called tax reforms, we find they often come with deceptive names implying benefits for the people. For instance, the tax rate itself has been increased to 10%. The language used to describe these reforms may mask the reality, suggesting they aim to revive the economy. In truth, the government’s intent seems focused on collecting more.

“When the fuel subsidy was removed, we were assured it would lead to improvements in public transport and other services. Yet, with the Naira’s decline, we face increased prices at fuel stations daily. Whatever reforms the government claims to pursue, it is crucial they first address the widespread distrust. People no longer take the government seriously; initiatives are viewed with suspicion due to a lack of sincerity and transparency.

“The government has urged citizens to tighten their belts, promising improvements, but we have witnessed excessive spending on public budgets and renovations of government properties. There seems to be little benefit for the people.

“This concern is not just for northern elders or citizens; it’s a national issue. Those in power were elected by a diverse electorate, and the policies they impose affect everyone. Whether one identifies with a particular political party or region, we all face the same economic challenges imposed by a government perceived as heartless,” he stated.

A Call for Dialogue
Despite heated opposition, there is hope for resolution. Senator Kawu Samaila calls for continued dialogue, urging all parties to understand each other’s perspectives.

“As lawmakers, we need to understand the grey areas and complexities of the tax reform bill. This process involves discussion, dialogue, and persuasion. We must come together to understand each other’s perspectives and reach a consensus that benefits Nigerians,” he added.

As the fight over the tax reform bill continues, the outcome will shape Nigeria’s economic future. The question remains: can the North and the Federal Government reach a compromise, or will this divide deepen? It’s time for all Nigerians to engage with the issues at stake and ask: What kind of fiscal future do we want for our country?.