President Bola Tinubu's bid to reform taxation in Nigeria has turned into a "war" of sorts, with some state governors, especially those from the North, pitched against the Federal Government and National Assembly members.
Early in October 2024, Tinubu transmitted four tax reform bills to the NASS. Of the lot, it was the bill that seeks to entrench the principle of derivation as the basis of revenue distribution to states that raised the dust. The Northern Governors' Forum opposed the Value Added Tax, VAT, Reform Bill on the ground that derivation would benefit states which have the headquarters of the corporate organisations on whose products the VAT is paid.
Lagos State, Tinubu's home state, commands over 80 per cent of the large corporate firms whose products are consumed all over the country. Other states similarly favoured are Rivers and Ogun states. The Northern governors feel this arrangement would short-change the North, and called for the bills to be withdrawn and reworked.
President Tinubu insisted that the bills must continue their journey through the legislative process. The governors turned the heat on NASS members from their states. Some even threatened that any lawmaker who supports the passage of the bill would be denied tickets in 2027.
We stand firmly behind the derivation principle of the VAT Reform Bill, provided that derivation does not refer to the payment of VAT accruals to the states harbouring the corporate headquarters of the firms that produce the products.
Many officials of the Tinubu administration, especially those who are in charge of tax administration, have shouted themselves hoarse explaining that derivation refers to rewarding the states where vatable goods are consumed. In this regard, VAT paid on soap that is produced in Lagos and consumed all over the country will be distributed according to the volume of consumption per state.
It also means that VAT paid on beer and alcoholic drinks brewed or distilled in any part of the country will be distributed according to where they are consumed. Tinubu's bill will effectively eliminate the unjust trend in the past where states that implement Sharia law and destroy alcoholic drinks still hypocritically enjoyed VAT revenues on them.
This is one of the injustices that our past military rule and sectional domination imposed on the rest of the country. States, like Kano, Katsina and others, which have set up Hisbah or Shariah law police outfits, destroy alcoholic drinks in their domains without paying compensation to the merchants who purchased them. Yet, they happily receive the VAT revenues paid on alcoholic drinks, thus short-changing the states where these products are consumed.
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We call on the Northern Governors to sheathe their swords and accept the derivation principle because it allays their fears of unjustly favouring states with corporate headquarters.
This bill must pass.
