Tinubu’s top tax reform adviser replies Northern governors’ objection to bills on VAT

Taiwo Oyedele, chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has responded to concerns raised by the Northern Governors’ Forum regarding the proposed VAT-sharing formula in the tax reform bills.

The governors met on Monday and issued a communiqué criticising the tax bills sent to the National Assembly by President Bola Tinubu, stating that the bills are skewed against the interests of the North.

The governors’ concern lies with the derivation model proposed in the bill, which allows some states to earn more based on the revenue collected within their states.
President Tinubu appointed Mr Oyedele as chairman of the committee, which made recommendations that inspired the four tax bills.

The bills are the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill.

Responding to the governors, Mr Oyedele, in a post on X on Tuesday, acknowledged the northern governors’ concerns, stating that the committee was also troubled by the sharing principle in the existing law.

He said the proposal in the bill aims to create a fairer system that respects the individual differences among states.

“We share the sentiment expressed by the Northern Governors regarding the inequity inherent in the current model of derivation as a basis for distributing VAT revenue. This issue, in fact, affects many states across all geopolitical zones because the current derivation is mainly determined based on where VAT is remitted, rather than where goods or services are supplied or consumed.

“Our proposal aims to create a fairer system by devising a different form of derivation which considers the place of supply or consumption for relevant goods and services, whether they are zero-rated, exempt, or taxable at the standard rate,” he said.

Mr Oyedele said the VAT distribution model in the law takes into account the peculiarities of certain commodities and services, noting that VAT distribution should reflect where subscribers are located.

“For example, a state that produces food shouldn’t lose out just because its products are VAT-exempt or consumed in other states. The state where the supply originates should be recognised for its contributions. The same principle should apply to services like telecommunications—VAT distribution should reflect where subscribers are located,” Mr Oladele said.

He noted that the committee will liaise with stakeholders to address some of the concerns raised.

“We will collaborate with all stakeholders to address this concern, with a view to finding a balanced solution that achieves a win-win outcome for all,” he said.

The four bills are still at first reading stage and are yet to be scheduled for second reading by either of the two chambers.
With the directive by the governors, the debates on the bills may divide the National Assembly along North/South.

Over the years, discourse over VAT often divides the country along north/south. For instance, the implementation of the Sharia law on consumption of alcohol by some northern states has irked many advocates of fiscal federalism, who have argued that Northern states should not get VAT from beerr and other alcoholic drinks.

“We need to look at how we share the resources of this country. If you have a law that prevents you from selling alcohol, that law should also prevent you from sharing money from alcohol. We should be honest with ourselves. States that prohibit the sale of alcohol should not share out of VAT from alcohol. Straight forward,” a former helath minister, Isaac Adewole, had stated in 2021.

Similarly, some states have argued that Lagos State, which hosts most corporate headquarters gets to claim source of all VAT paid by customers.

The northern governors raised this in the Monday’s communique.

“This is because companies remit VAT using the location of their headquarters and tax office and 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 that can jeopardise the well-being of our people,” the communique of the northern governors forum reads, in part.