The Nigerian presidency has responded to the Northern Governors’ Forum’s rejection of the new derivation-based model for Value-Added Tax (VAT) distribution in the tax reform bills currently before the National Assembly.
The response is contained in a statement by Bayo Onanuga, Special Adviser to the President (Information & Strategy), on October 31, 2024.
Onanuga stated that while the presidency commends the Governors and traditional rulers for supporting President Bola Tinubu over the successes recorded in addressing the country’s security challenges, it is necessary to clarify the misunderstandings and concerns surrounding the tax reform already initiated by the current administration.
Presidency’s Explanation
Onanuga stated that President Tinubu and the Federal Executive Council endorsed new policy initiatives aimed at streamlining Nigeria’s tax administration processes, enhancing efficiency, and eliminating redundancies across the nation’s tax operations.
- Nairametrics previously reported that in a communiqué signed by the Chairman of the Forum, Muhammed Inuwa Yahaya, Governor of Gombe State, the Forum expressed its disapproval of the proposal, alleging that it is against the interests of the North and other sub-nationals.
- But Onanuga said these tax reforms emerged after an extensive review of existing tax law, adding the National Assembly is considering four executive bills designed to transform and modernize Nigeria’s tax landscape.
- He added that the Nigeria Tax Bill aims to eliminate unintended multiple taxation and make Nigeria’s economy more competitive by simplifying tax obligations for businesses and individuals nationwide, while the Nigeria Tax Administration Bill (NTAB) proposes new rules governing the administration of all taxes in the country.
- He noted that the objective of the NTAB is to harmonize tax administrative processes across federal, state, and local jurisdictions for ease of compliance for taxpayers in all parts of Nigeria.
“Third, the Nigeria Revenue Service (Establishment) Bill seeks to rename the Federal Inland Revenue Service (FIRS) as the Nigeria Revenue Service (NRS) to better reflect the mandate of the Service as the revenue agency for the entire federation, not just the Federal Government.
“Fourth, the Joint Revenue Board Establishment Bill proposes the creation of a Joint Revenue Board to replace the Joint Tax Board, covering federal and all state tax authorities.
“The fourth bill also suggests establishing the Office of Tax Ombudsman under the Joint Revenue Board, which would serve as a complaint resolution body for taxpayers,” he added.
He stressed that the proposed laws will not increase the number of taxes currently in operation but will optimize and simplify existing tax frameworks.
“The tax rates or percentages will remain the same under these reforms, as they focus on ensuring a more equitable distribution of tax obligations without adding to the burden on Nigerians,” he stated, assuring that the reforms will not lead to job losses but will stimulate new avenues for job creation by supporting a dynamic, growth-oriented economy.
“Importantly, these laws will not absorb or eliminate the duties of any existing department, agency, or ministry. Instead, they aim to harmonize revenue collection and administration across the federation to ensure efficiency and cooperation.
“At the moment, tax administration lacks coordination among federal, state, and local tax authorities, often resulting in overlapping responsibilities, confusion, and inefficiency. Without reform, this inefficiency will persist.
“The proposed laws aim to coordinate efforts between different tiers of government, resulting in better tax resource management and greater clarity for taxpayers,” he added.
- He explained that the proposed reforms seek to consolidate multiple taxes, integrating Company Income Tax (CIT), Personal Income Tax (PIT), Capital Gains Tax (CGT), Petroleum Profits Tax (PPT), Tertiary Education Tax (TET), Value-Added Tax (VAT), and excise duties into a unified structure to reduce administrative fragmentation.
“The current model for distributing VAT is based on where the tax is remitted rather than where goods and services are supplied or consumed. The ongoing tax reform seeks to correct the inherent inequity in the current derivation model as a basis for distributing VAT revenue,” he stated.
- He noted that the new proposal implies that states in the Northern region that produce food should not lose out just because their products are VAT-exempt or consumed in other states.
According to him, these reforms are critical to improving the lives of Nigerians and were not put forward by President Tinubu to undermine any part of the country, as now is the best time to overhaul Nigeria’s tax systems and create the revenue that all tiers of government require to fund the development that the country and Nigerians urgently need.
What you should know
The Forum had called on members of the National Assembly to oppose the legislation and any other measures that jeopardize the interests of the people of the North.
- It stated, “The Forum notes with dismay the content of the recent Tax Reform Bill that was forwarded to the National Assembly. The contents are against the interests of the North and other sub-nationals, especially the proposed amendment to the distribution of Value-Added Tax (VAT) to a derivation-based model. This is because companies remit VAT based on the location of their headquarters and tax offices, not 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 could jeopardize the well-being of our people.
- However, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele, reacted to the opposition of the Northern Governors Forum.
- In a statement on his official page on X, Mr. Oyedele shared sentiments regarding the injustice in the current mode of VAT distribution, which takes into account the location where VAT is remitted rather than where goods are supplied or consumed.
According to him, the current VAT distribution model is not only unfair to Northern states but to states across all geopolitical zones.