Tax Reform Bill to shake-up VAT revenue split between regions
A new Tax Reform Bills has been submitted to the NigerianNational Assembly for consideration and proposes an equitable model to share the Value Added Tax among the 36 states of the federation. The bill also proposes 0% VAT on food, education and healthcare.
The proposed Tax Reform Bill seeks to fundamentally alter the VAT regimeThe reform proposes revising the VAT derivation formula to allocate revenue based on the location of goods and services consumption rather than the current focus on the situs of business operations or corporate headquarters. This shift addresses longstanding inequities in VAT revenue distribution and aligns with international best practices.
Broaden VAT revenues among states
Currently, states such as Lagos, Rivers, and the Federal Capital Territory (FCT) dominate VAT revenue allocations due to their concentration of corporate activities, capturing 42%, 16%, and 9% of national VAT collections, respectively. Conversely, states like Borno and Bauchi receive less than 0.5%, despite significant population sizes. The proposed reform, championed by Dr. Zacch Adedeji, Chairman of the Federal Inland Revenue Service (FIRS), aims to equalize this imbalance by redistributing VAT based on consumption metrics. This would particularly benefit populous but economically underdeveloped states, enabling more equitable access to national revenue for critical investments in public services like healthcare, education, and infrastructure.
The reallocation is expected to narrow regional development disparities, fostering national unity and reducing perceptions of systemic inequality. However, states that currently benefit from the existing production-based model, notably Lagos and Rivers, may initially experience fiscal pressures. Despite this, these regions possess robust economic frameworks to adapt over time.
Under President Bola Ahmed Tinubu’s Renewed Hope Agenda, the reform aligns with broader national objectives of inclusive growth and regional equity. While some challenges in implementation are anticipated, the reform’s ultimate goal is to create a sustainable and unified economic future where VAT revenues reflect and serve the needs of all Nigerians more equitably, irrespective of geographic disparities.
