Northern Govs oppose derivation-based VAT model, call for equitable tax reform

Nineteen northern state governors, under the Northern States Governors’ Forum (NSGF), have voiced opposition to President Bola Tinubu’s proposal to adopt a derivation-based model for Value Added Tax (VAT) distribution in Nigeria.

Following a strategic meeting in Kaduna on Monday, chaired by NSGF Chairman and Gombe State Governor Muhammad Yahaya, the governors raised concerns that the new model would disadvantage northern states and other less industrialized regions.

The gathering, which included northern traditional rulers, Chief of Defence Staff General Christopher Musa, and other stakeholders, highlighted the potential impact of the proposed Tax Reform Bill, currently under review in the National Assembly. In a communique, the governors emphasized the need for fairness in national policy implementation, stating that no geopolitical zone should be marginalized.

Currently, VAT revenue is allocated based on company headquarters rather than consumption location, a system that the governors believe ensures a more balanced distribution of revenue from the Federal Accounts Allocation Committee (FAAC). They argue that shifting to a derivation-based model could reduce funds for less industrialized areas, calling for a more equitable approach to tax reform.

The communique read in part, “The forum notes with dismay the content of the recent Tax Reform Bill that was forwarded to the National Assembly. The contents of the reforms are against the interest of the North and other sub-nationals, especially the proposed amendment to the distribution of Value Added Tax to a Derivation-based Model.

“This is because companies remit VAT using the location of their headquarters and tax office where the services and goods are consumed. In view of the foregoing, the Forum unanimously rejects the proposed Tax Amendments and calls on members of the National Assembly to oppose any bill that can jeopardise the well-being of our people.

“For the avoidance of doubt, the Northern Governor’s Forum is not averse to any policies or programmes that will ensure the growth and development of the Country.

“However, the forum calls for fairness in the implementation of all national policies and programmes to ensure that no geopolitical zone is short-changed or marginalised.

“On the present economic hardship affecting the Country, the Forum is appealing to all citizens to remain calm, as the states and Federal Government are working hard to implement measures that will cushion effects of the hardship,” the communique stated.

The latest development comes amid multiple debates surrounding resource control and the distribution of Value Added Tax revenue among states.

Many northern states where Sharia law is practiced prohibit the sale of alcoholic beverages but still receive a share of VAT collected from alcohol sales.

However, in the new tax reform bill, the Taiwo Oyedele-led panel proposed the amendment of the distribution formula to a Derivation-based Model.