Early last month, President Bola Tinubu sent four tax-related bills to the National Assembly for deliberation. These were: Nigerian Tax Bill 2024, the Tax Administration Bill, the Nigerian Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill.
The bone of contention, however, is the Value Added Tax-related bill that seeks to place emphasis on the derivation principle in the sharing of VAT proceeds. In a surprise move, Tinubu also sought to reduce the Federal Government's share from 15 to 10 per cent.
Following the rejection by the Northern Governors Forum, NGF, of the VAT revenue sharing proposal, the National Economic Council, NEC, and other well-meaning Nigerians advocated for the withdrawal of the Bills for further consultations.
Explaining the basis for their action, the Chairman of the 19-man NGF, Inuwa Yahaya of Gombe State, said:
"For the avoidance of doubt, the Northern Governors' Forum is not opposed to policies and programmes aimed at fostering national growth and development. However, the Forum calls for equity and fairness in implementing all national policies and programmes to ensure that no geopolitical zone is short-changed or marginalised".
Responding, the Federal Government, particularly Zacch Adedeji, the Federal Inland Revenue, FIRS, Chairman who leads Tinubu's tax reform committee, wrote an open letter reassuring the North that the reforms were not aimed against them or anyone. According to him, the reform was a "derivation-based VAT model that would redirect funds from goods and services generated locally back into the communities that produced them".
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Both sides appear to be advocating for the same thing: fairness. However, the difference is in the details. The Northern Governors argue that the derivation principle will favour states which host the headquarters of corporations to which VAT from all parts of the country is paid, thus short-changing areas where the tax is collected. The presidency counters that derivation is aimed at favouring the consumer states, where the VAT is paid.
As we see it, the Federal Government's intention behind the derivation principle is welcome because it actually fosters equity and fairness.
States should receive VAT revenues based on the amount of VAT paid by consumers in their domains. That way, states that do not consume products like alcohol, especially those that destroy them, will no longer be eligible to benefit from the VAT on alcohol. Tinubu's derivation-based reform will stop states from reaping where they did not sow.
The best template is for states to collect the VAT and pay an agreed percentage to the Federal Government. The central command system is killing our federalism. It must go. However, to avoid unnecessary frictions, let us dialogue over it. The Southern Governors' Forum should meet and adopt a position, then we meet at the round-table.
Let's settle this amicably, once and for all.
