Tax Reform Bill: The Contentious Issues, By Sylvester Emmanuel
A lot has been said from various quarters and regions of the country concerning president Tinubu’s Tax Reform proposal before the NASS . It is true that Nigeria has a very poor tax harmonization system, derivation, equality and administration in line with the responsibility and commitments of the government to the people. But we are faced with a major issue of ambivalent structure, treacherous to a basic communal and nationalistic interest.
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First of all, what are the proposals? It is all about reforming the formulas used for generating and sharing taxes (CIT, PIT, CGT). Let’s take a look at the Value Added Tax in the proposal. The Tinubu administration plans to increase VAT in the proposal from 7.5% to 10% in 2025, 12.5% in 2026 and 15% in 2030. Although Nigeria has one of the least VAT in Africa. Reactions have trailed the increase from all quarters, kicking against the proposed increase.
Secondly, the proposal plans to reform the sharing formula of VAT:
State of Derivation -> 60%
National Equality -> 20%
Population percentage -> 20%
The North in particular through various political blocs like CNG and ACF kicked against the proposal. The national Assembly has deliberated continuously on the bill until the Nigeria Governors Forum moved to ask the president to take the issue out of NASS which resulted in their unanimous resolution of recent. Towards the New Year period, they paid a visit to the president in his Lagos home, to collectively agree on the matter and arrived at the following:
State of Derivation -> 30%
National Equality -> 50%
Population percentage -> 20%
What does this mean?
It means that VAT will no longer be shared the way it has been shared if the bill is finally signed as it is almost close to that. Take, for instance, if Zamfara State generates N100m in a month, N30m will stay with them as a state where the 100m was derived or generated from. On equality, N50m will go to the center along with other states for sharing according to agreed Revenue sharing formula as enshrined in the constitution. While the 20% for population percentage will be shared based on the state’s population contribution to national growth.
This is why if a state like Zamfara generates a VAT of 200m in a year, it usually collects billions of naira thereby profiting immensely for being a part of the union called Nigeria. The reason is not far-fetched: 50% equality contribution from a state like Lagos and Rivers with high VAT yield becomes an advantage to a state like Zamfara. A state like Lagos generates up to a trillion naira, by the time it loses 50% (N500b) to the center, Zamfara and other low VAT yielding states profits from their productivity through the equality sharing tag of 50%. This is why nearly all the northern states are dissatisfied or not happy to even talk about this tax reform.
On population percentage, the total VAT of 20% collected from the 36 states are added together and shared according to the percentage population contribution of each state which still benefit Lagos State more than the others because it’s still the most populated state in Nigeria. If the percentage of Lagos population in Nigeria is 18% for instance, 18% of the total collected VATs on 20% population share will go to Lagos State. This is the mathematical analysis of the said proposal.
In my opinion, I’m a bit unhappy with the proposal. Do you know why? The reform is coming from president Tinubu because he’s a Lagosian – the most affected by the current VAT system and the most beneficial by the proposed reform. The perception from northern quarters is that, president Tinubu is doing this reform to benefit his state. I wish this reform came under Buhari, it would have depict a north ready to be self-reliant. This whole reform just demonstrates the divisive interest in our country and the reason why the Emilokan system dominates our polity.
Personally, I like the reform but I don’t like the fact that, it is coming from president Tinubu. This is because it demonstrates that he’s doing it in line with the Emilokan political drives which doesn’t reflect nationalism.
The complaints and agitations from the North still kicking against the 30% endorsed by the Nigeria Governors Forum shows a North that’s not ready to develop its agricultural and mineral endowments to be self-reliant.
According to Senator Natasha Uduaghan, the North in the 60s, were exporting groundnuts of about $25m to the UK which in present monetary value, is about N3.6trn against the current export of $3m. The North threw away agriculture and ran after extractive industrial derivations from the South which has today placed the region on the highest marginal propensity of consumption against productivity.
Now, The perception of many in the north would be that Natasha’s marriage to a Southerner is a minus to the northern senators forum for a strong national issues of this nature. Whereas, the truth of the matter is that, the North will never get better until it breaks away from the reliance on industrial derivations from the South. If Zamfara gets billions in VAT after generating 200m annually, that cultivates the ground for laziness. I’m of the opinion that, the 60% derivative proposal of the VAT from the onset remains. Some intellectual school of thought in the country have opined that, the 30% endorsed by the NGF will still encourage laziness and unproductivity. Stating that the best is to leave at 60% to encourage hard work from all states.
The North is too blessed to be reliant on VAT from the South. North believes they’re feeding the South, but how come you are profiting heavily from VAT derivations? Where’s the truth? This is the hard work strings that needs to be pulled in the North among the greedy elites. Start looking inwards on how to harness the potential endowments of the North. You have Californium, world’s most expensive mineral but the populace can’t have the benefits
The total VAT of northern Nigeria put together is not up to Oyo State and Rivers State from the the South. Yet one individual in the North is richer than Nigeria. Unfortunately, some agitators from the North are still against taxing rich individuals. That leaves us with the intent to believe that northern elites don’t actually want the interest of the commoners in the North. The sufferers of this tax system is the common man because the funds are still embezzled after sharing and yet they kick against taxing the rich individuals. I don’t get it.
Now away from the North, let’s come to the South East. Anambra VAT is no where compared to the number of billionaires and industrialits from that state. What this means is that, the portfolio of this billionaires are either fraud-related or that their wealth is not home-made or lack home investments. I learnt nearly every family in some communities in Anambra have people abroad. A lot of Igbo billionaires are not investing in the South East. This is what the poor VAT generation from the 5 states of the East depicts. A lot of the VAT generated in thesame Lagos State with the highest, have Igbos as major external investors hence the high VAT yield.
Moreso, statistics has it that Igbos are the highest tax generators in each state of Nigeria after the indigenous people of that state. This is still a plus to the country and a minus to the South East region. T
Hence the reason why they’re still placed far better as a region than the whole of the North in terms of VAT.
Taxes are true reflections of industrial activities in a state. It is a serious red-line for you to have almost 90% of your VAT as profit from the derivations from other states owned to a sharing formula advantage. How long will this continue? Countries with less endowments than northern Nigeria are netting hundreds of billions of dollars in agriculture. Netherlands is not up to the size of the smallest state in the North in land mass, but they have agricultural export of over $300bn annually. This cannot be if massive investment are not made in technology education. How can you have about 900,000 girls below 14yrs divorced only in Sokoto State and expect to develop technologies to help you build a high yielding VAT from industrial activities of brilliant citizens. Until the North discourage this achaic orientations treacherous to human capital development, it will be difficult.
Even with the 30% endorsed by the Governors Forum, the North is still the most profitable by Equality and population derivatives of VAT yet they’re still complaining against the 30% home derivation. Now, does the 30% stop you from deriving your own? No! What you are supposed to be thinking is how to increase industrial activities to boost your 30% yield.
In conclusion, my question again to president Tinubu:
If President BAT was from Zamfara or Yobe States, will he propose this Tax Reform?
Now my question to the North:
Will you have supported 50% equality in VAT relinquished to the center if you are from the South?
So, interest is the engine room of government policy proposals. This is why you need to look within in your development drive rather than relying on distant states VAT yields.
Sylvester Emmanuel, an Author and Public Affairs Analyst, writes from Abuja, Nigeria
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