A recent survey by SBM Intelligence suggests that the federal government’s proposed tax reforms fail to address the unique economic and social characteristics of Nigeria’s regions, potentially exacerbating existing inequalities.
While the reforms aim to reduce the tax burden on citizens and improve tax collection efficiency, as outlined by Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, the report highlights significant oversight in regional considerations.
Key Findings: Regional Imbalance in Tax Distribution
The survey, conducted across Nigeria’s geopolitical zones, points out disparities in Value Added Tax (VAT) distribution, which remains a contentious issue. The report notes:
- Only five states—Anambra, Cross River, Lagos, Ogun, and Rivers—could sustain themselves financially without federally distributed revenue.
- States like Imo received 1,715.9% of their VAT contributions in allocations, while Abia, Cross River, and Kebbi each received over 700%.
- Conversely, Lagos and Rivers, which contribute 55% of local VAT, received only 16.76% and 22% of their contributions, respectively.
The northeast region, on average, received 244.46% of its VAT contributions, with Bauchi topping the chart at 384.94% and Adamawa receiving the lowest at 165.69%.
“These imbalances risk deepening economic disparities and undermining regional equity,” the report warns.
Historical and Legal Context
The report traces VAT’s evolution from the Sales Tax Decree of 1986 to its current form, emphasizing the ongoing conflict between federal and state fiscal powers. Legal precedents, such as the Supreme Court’s affirmation of federal VAT authority over state-level taxes, underscore the complexity of aligning national and regional interests.
Recent legal battles led by Lagos and Rivers states, demanding greater control over internally generated revenue, highlight the urgency for reform.
“Resolving these tensions may require a Supreme Court ruling or a constitutional amendment to redefine fiscal powers and ensure clarity in revenue-sharing frameworks,” the report states.
North-South Divide in Taxation
The VAT debate underscores broader economic and political disparities between Nigeria’s northern and southern regions. The report highlights:
- The North’s reliance on VAT redistribution due to lower economic activity compared to the South’s industrial hubs.
- Calls for derivation-based revenue allocation, where states retain a larger share of what they generate, to promote equity and regional development.
Controversy Surrounding Tax Reform Bills
The proposed tax reform bills have sparked intense debate:
- The Northern Governors Forum opposes provisions perceived to undermine northern interests, urging legislators to resist such changes.
- The National Economic Council (NEC), chaired by the Vice President and comprising state governors, recommended withdrawing the bills for broader consultation.
- Despite these objections, President Tinubu insisted on a legislative process, allowing input during public hearings.
In a recent development, the Senate postponed hearings on the tax reform bills until 2025, providing time for political negotiations to address regional concerns.
Recommendations
To ensure the tax system promotes regional equity and national cohesion, the report advocates for:
- Balancing derivation principles with national unity.
- Simplifying tax structures while addressing regional disparities.
- Negotiating reforms that consider Nigeria’s diverse economic landscape to foster development across all regions.
The unresolved VAT controversy remains a focal point in Nigeria’s fiscal policy debates, with the potential to shape the country’s economic future through either a Supreme Court decision or constitutional reform.
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Opeoluwa Benson – Content Researcher
