How Tinubu's Tax Reform Bill will Champion consumption-based VAT model

• The Federal Government's proposed Tax Reform Bill aims to reshape Nigeria's Value Added Tax (VAT) derivation formula
• The proposed reform seeks to shift the revenue distribution paradigm by prioritising consumption over production
• Experts say states like Lagos and Rivers, which currently benefit from higher VAT revenue

Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.

The Federal Government's proposed Tax Reform Bill, aiming to reshape Nigeria's Value Added Tax (VAT) derivation formula, has sparked widespread debate about its potential to redefine regional equity in revenue distribution. 

Advocates argue that the reform could address long-standing disparities in resource allocation, with far-reaching implications for Nigeria’s economic growth and national unity.

President Bola Tinubu's Tax Reform Bill to distribute wealth equally. Credit: State House
Source: Facebook

FIRS boss explains the benefits of the new Tax Bill

During a House of Representatives session,  Zacch Adedeji, Executive Chairman of the Federal Inland Revenue Service (FIRS), articulated the need for a consumption-based VAT system. 

“VAT is a consumption tax, and its revenue should reflect where goods and services are consumed, not where transactions are recorded,” Adedeji said.

Under the current VAT framework, revenue allocation disproportionately favours states housing corporate headquarters or production hubs. 

Lagos, for instance, accounts for 42% of VAT collections, while Rivers and the Federal Capital Territory (FCT) follow with 16% and 9%, respectively. Conversely, states such as Borno and Bauchi receive less than half a per cent each.

The proposed reform seeks to shift the revenue distribution paradigm by prioritising consumption over production. 

Advocates highlight its potential to level the playing field for states with large populations but lower industrial activities. “This change could empower underserved regions to invest in education, healthcare, and infrastructure,” said Arabinrin Aderonke Atoyebi, a media aide to Adedeji.

The New Tax Bill to distribute wealth equally

However, concerns linger. States like Lagos and Rivers, which currently benefit from higher VAT revenue, may need more budgetary constraints under the new formula. 

Critics worry this could delay infrastructure projects and public services. Proponents, however, argue that the long-term gains—bridging regional inequalities and fostering unity—far outweigh the short-term challenges.

Adedeji’s reform efforts align with President Bola Ahmed Tinubu’s Renewed Hope Agenda. The government aims to promote sustainable growth and diminish regional disparities by ensuring fair resource allocation. 

“This reform is about creating a Nigeria where every region can succeed,” Adedeji emphasised.

The proposed VAT redistribution model has generated significant public interest. It offers a glimpse of a future in which Nigeria’s wealth is more equitably shared among its diverse regions.

Expert explains what Tinubu's 'Tax Reform Bill' seeks to achieve

Legit.ng previously reported that President Bola Tinubu's Tax Reform Bill has become essential to his administration's economic vision.

It focuses on creating a unified and efficient tax system that promises to drive national growth.

Amidst all these components of the Tax Reform Bill, Legit.ng reported that the northern block had expressed scepticism over these reforms.

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Source: Legit.ng