The governors forum further recommended that no terminal clauses should be introduced for agencies such as TETFUND, NASENI, and NITDA, ensuring that these institutions continue receiving development levies.
Abuja, Nigeria – The Nigeria Governors’ Forum (NGF) has approved a revised Value Added Tax (VAT) sharing formula, aiming to promote equitable resource distribution across the country.
This decision was disclosed in a communiqué issued on Thursday, signed by AbdulRahman AbdulRazaq, NGF Chairman and Governor of Kwara State.
The communiqué was released after sub-national consultations with the Presidential Tax Reform Committee and other stakeholders, including the Federal Inland Revenue Service (FIRS).
Key Decisions
During deliberations with the Presidential Tax Reform Committee, the NGF resolved to support extensive reforms of Nigeria’s fiscal and tax systems, which they described as outdated. The governors emphasized the importance of modernizing tax laws to improve fiscal stability and align with global best practices.
As part of its resolutions, the NGF endorsed a revised VAT-sharing formula structured as follows:
- 50% based on equality,
- 30% based on derivation,
- 20% based on population.
The forum also resolved that there should be no increase in the VAT rate or reduction in Corporate Income Tax (CIT) at this time, in order to maintain economic stability.
Additionally, the communiqué stated that governors advocated for the continued VAT exemption of essential goods and agricultural produce to protect citizens’ welfare and promote agricultural productivity.
The governors forum further recommended that no terminal clauses should be introduced for agencies such as TETFUND, NASENI, and NITDA, ensuring that these institutions continue receiving development levies.
The NGF reaffirmed its support for ongoing legislative processes in the National Assembly aimed at passing the proposed Tax Reform Bills.
Taiwo Oyedele’s Committee Proposals
The Presidential Committee on Fiscal Policy and Tax Reforms, led by Taiwo Oyedele, has proposed an alternative VAT-sharing formula:
- 60% based on derivation,
- 20% based on equality,
- 20% based on population.
Other proposals by the committee include a reduction of the CIT rate from 30% to 25% over two years and a phased adjustment of the VAT rate. The VAT rate on essential goods would be reduced to 0%, while rates for other items would rise to 10% by 2025, 12.5% by 2029, and 15% by 2030.
The committee also suggested introducing a 4% development levy to harmonize taxes and gradually phase out earmarked taxes. Furthermore, agencies such as TETFUND, NASENI, and NITDA would continue to receive budgetary allocations.
Reactions to the Proposal
The Northern Governors’ Forum (NGF), led by Gombe State Governor Muhammed Inuwa Yahaya, has criticized the derivation-based VAT-sharing model proposed by Oyedele’s committee. In a communiqué issued after a meeting of Northern governors and elders, the forum argued that the model undermines the interests of the North and other sub-national regions.
The Northern governors urged the National Assembly to reject the proposal and any similar legislation that could harm their region’s welfare.
However, President Bola Tinubu has urged stakeholders to engage with the legislative process on the issue. Oyedele defended the committee’s proposals, stating that the current VAT-sharing system is unfair to all states and must reflect where goods are consumed or supplied.
Current VAT Distribution Framework
Under the current VAT Act, revenue is allocated as follows:
- 15% to the Federal Government,
- 50% to the States and FCT,
- 35% to Local Governments, with at least 20% based on derivation.
Additional factors influencing distribution include:
- 50% based on equality,
- 30% based on population.
- Furthermore, 4% of VAT revenue is allocated to the FIRS, and 2% goes to the Nigeria Customs Service (NCS) for import VAT collection.
The proposed tax reform bills have already passed the second reading in the Senate, marking significant progress toward comprehensive fiscal reform.
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