Northern Nigerian governors and opinion leaders mount strong opposition against President Bola Tinubu’s Tax Reform Bill due to its proposed derivation-based model for distribution of Value Added Tax (VAT)
By Udoka Ekeleme, Abuja
Intense opposition from the 19 Northern Nigerian states continues to challenge the Tax Reform Bill of President Bola Tinubu government. The governors of these Northern states, their traditional rulers and other opinion leaders in the region are waging the war against an aspect of the Bill which specifies that when it becomes law, the distribution of Value Added Tax (VAT) will follow a model based on derivation.
The implication of derivation-based model of VAT distribution is that states would benefit from the tax based on their consumption. In effect, Northern Nigeria which religious laws forbid the consumption of alcoholic beverages, would no longer share from VAT generated from the consumption of alcohol mostly in the Southern Nigerian states.
Early October 2024, President Tinubu transmitted four Tax Reform Bills to the National Assembly for passage into law. But the Northern States Governors’ Forum (NSGF) mounted stiff opposition to the proposed tax amendment Bill.
The 19 state governors in the Northern region declared their strong opposition against the Bill submitted by the Federal Government to the National Assembly for approval.
The governors particularly rejected the proposed shift to a Derivation-based Model for Value Added Tax distribution.
They claim that the proposed model would be at the disadvantage of the northern states and other less industrial regions.
The governors voiced their strong opposition in a communique issued after a strategic meeting in Kaduna.
The communique was read by the Chairman of the NSGF and Governor of Gombe State, Muhammad Yahaya.
The meeting included northern traditional rulers, the Chief of Defence Staff, General Christopher Musa, and other key stakeholders.
The development came amid multiple debates surrounding resource control and the distribution of VAT 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 Bill, the Taiwo Oyedele-led panel proposed the amendment of the distribution formula to a Derivation-based Model.
Contending with the policy, the Northern governors said VAT is currently
remitted based on the location of company headquarters rather than where goods and services are consumed.
They added that the measure will negatively affect the distributed revenue from the Federal Accounts Allocation Committee.
“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.”
The forum further demanded equity and fairness in national policy implementation and no geopolitical zones should be shortchanged.
“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 read.
Officials of the Tinubu government charged with the responsibility of new tax administration, have tried to explain that the derivation in VAT distribution is intended to reward states where vatable goods are consumed. This means that VAT generated from beers and other alcoholic beverages which are the most consumed products in the country after food items, will only be distributed among the states where they are consumed. Beers and other alcoholic beverages generate a huge quantum of VAT which is shared among all the states of the federation, with Northern states which consume less of such goods receiving even larger share than the states where these beverages are consumed the most.
The Southern Nigerian states regard the current VAT distribution as an injustice foisted on the country by the military juntas who were predominantly Northerners. Mainly in the North West and North East regions, the Sharia enforcement outfits referred to as the Hisbah, destroys millions of bottles of alcoholic drinks without compensation to the owners, yet such states as Kano, Jigawa, Katsina among others share in VAT revenues generated from the consumption of alcoholic beverages from states where they are consumed. The practice is viewed as the proverbial robbing Peter to pay Paul.
Due to the NSGF’s opposition, the National Economic Council (NEC) meeting of Friday, November 1, 2024, presided over by Vice President Kashim Shettima, had advised Tinubu to withdraw the Bill from the National Assembly. In his reaction to opposition to his tax policy initiative, President Tinubu had insisted that his government would not withdraw the Bill from the National Assembly, instead, insisted that it must pass through legislative process.
One of the public communications aides to Tinubu, Bayo Onanuga, in a statement said Tinubu “Believes that legislative process which has already begun, provides an opportunity for inputs and necessary changes without withdrawing the Bills from the National Assembly”.
Instructively, anger and disquiet trailed the Bill at the Senate when it was brought forth at the floor on Wednesday following the appearance of the of the Federal Government Tax Executives who came to clarify the upper chamber on the Bills.
Meanwhile, Governor of Borno State, Babagana Zulum in sheer solidarity with Shettima on the tax reform bill said the new tax regime will destroy the North. Speaking on the development in an interview with BBC Hausa service, the governor expressed displeasure over how the Bills enjoyed speedy and smooth passage to the current phase when other bills had spent several years to scale through.
Zulum said, “We condemn these bills transmitted to the National Assembly. They will drag the north backward, and not only the north, South East, South West and some states in the South West such as Oyo, Osun, Ekiti, Ondo, will have problem with these bills.
“It is not opposition. This, based on our understanding, is something that will destroy the north in its entirety. Therefore, we call on President Bola Ahmed Tinubu and others to review this decision. He secured 60 per cent of his votes in the north. He should not listen to those telling him that northerners are not supporting him. If our interest is served, that is all. What we need now is the withdrawal of the tax bills.
“Why all the rush! There’s a petroleum bill that was presented but it took almost 20 years before it was finally passed. But this one was transmitted and now receiving legislative attention within a week. What we are saying is that, let it be treated carefully and with caution so that even after our exit, our children would reap the benefits.
“How we see it is, if these bills scale through, we will not be able to even pay salaries. And if we paid, it won’t be sustainable the following year.”
Asked whether the bills would further exacerbate hunger and poverty in the north, Zulum answered in the affirmative, stating, “Including security. But they’re saying otherwise. We are against it, Lagos is against it; that it will drag it backwards. If this is the situation, then why won’t they rescind it? Our National Assembly members and even some from the Southern region are not in support of these bills.”
