As the controversy regarding the impact of the new tax reform proposed by the federal government continues to rage, experts have stated that the impact would lead to the crippling of the economy in the northern state.
Daily Trust reports that the bone of contention on the Tax Bill is Section 77 that sought to make changes to the way Nigeria’s Value Added Tax is redistributed to the state and would see a transition to a consumption-based VAT distribution model with emphasis on derivation over equality or population.
Engr. Bashir Ishaq Bashir, a UK trained mechanical engineer and CEO of COEC Construction, who was governorship candidate of Labour Party in Kano, in the 2023 general election, said the Section 77 of the Tax Reform Bill represents a structural shift that could deepen economic inequalities between Northern and Southern Nigeria.
He noted that while Lagos consolidates its financial dominance, Northern Nigeria would risk losing vital resources critical for its development.
“The implementation raises significant concerns about the economic implications for Northern Nigeria while amplifying advantages for states like Lagos. For instance, Lagos currently generates over 50% of Nigeria’s VAT due to its status as an economic hub, housing multinational companies, high retail activities, and luxury consumption. For example, the new formula, Lagos stands to retain a larger share of the VAT, funneling more resources to infrastructure and business incentives.”
He said the impact on Northern states that have relied heavily on equitable VAT redistribution, risk losing up to 30 to 40 per cent of their current allocations, and thus severely affecting states like Sokoto, Gombe, and Zamfara, which have limited economic activities and depend heavily on federal allocations.
He added that the centralisation of tax collection would affect states with diverse local taxes, such as Kano and Kaduna, could lose fiscal autonomy and revenues amounting to billions annually.
“The North’s agrarian economy could be disproportionately affected, as agricultural value chains are underdeveloped compared to the commercial services prevalent in Lagos. The North’s economic reliance on agriculture and informal trade contrasts sharply with Lagos’s diversified economy as Kano’s informal trade generates significant economic activity but contributes minimally to VAT, making the derivation formula inherently biased.”
He said the overall effect of the bill would lead to the reduction of funding for irrigation projects in Kano and Sokoto could jeopardise food security and rural livelihoods while states like Borno and Yobe, grappling with insurgency recovery, may lack sufficient funds for reconstruction without equitable federal allocations.
He therefore called on northern legislators to push for revisions to the VAT formula, ensuring population and equity remain core components, while engaging in bipartisan coalitions to demand fiscal federalism that balances derivation with national development goals.
“State governors should unify to lobby for compensation mechanisms that offset potential revenue losses and explore Public-Private Partnerships (PPPs) to reduce reliance on federal allocations. They should invest in agro-processing zones and renewable energy initiatives to boost regional GDP.
Also doubling down on the same recommendation, a London-based Nigerian public affairs analyst, Barrister Bulama Bukarti, stated that the proposed Tax Reforms Bill would worsen the economic challenges in the northern region.
Bulama, in a chat with our correspondent yesterday said the proposed Section 77 of the Nigeria Tax Reform Bills (2024), championed by President Tinubu is set to have a far-reaching and devastating impact on the northern states of Nigeria, more so than any other economic policy since independence.
“The changes to the VAT distribution system, particularly the introduction of the new 60% “derivation” formula, will significantly benefit Lagos, Rivers and Ogun, while leaving other states with much less. This shift will exacerbate the already widening economic divide between the north and south, further entrenching poverty, underdevelopment and regional disparities. With northern states already facing considerable economic challenges, this reform risks deepening their struggles and undermining any efforts towards national unity and cohesion.
Pick hole on taxation of persons’ proposal
Meanwhile, tax experts at the weekend scrutinised the taxation of income of persons (TIP) under the proposed Nigeria Tax Bill, 2024, calling for caution in the implementation of the proposal.
At a webinar organised by the Chartered Institute of Taxation of Nigeria (CITN) tagged, “A Critical Review of Taxation of Income of Persons under the Proposed Nigeria Tax Bill, 2024,” they called for a review of the proposal following some grey areas.
The Executive Chairman of Kano State Internal Revenue Service (KIRS), Zaid Abubakar who did a critical review of the TIP explained that the bill imposed taxes on the Income, Profits or Gains (IPGs) of companies, enterprises, individuals, family, trustees and estate.
According to him, the bill at this point failed to include IPGs brought or received in Nigeria.
He explained that the N150m threshold for asset disposal is high, as most sub -nationals do not have a significant number of residents that own such a volume of assets.
“It is not clear what will happen to incomes between N800k to N2.2m bracket. Will they be zero-rated or charged at 15%?
“Allowing NITDA, TETFUND, and NASENI to rely on budgetary allocation or having a sunset clause for them will negatively affect the educational and technological advancement of the country,” the expert explained.
Abubakar stated that there is the need to harmonise Sections 4(1) and 12 “In order not to give room for misinterpretations on account derived, brought and received in Nigeria.”
Tayo Ogungbenro, Partner and Head, Transfer Pricing and Tax Consumer and Industrial Markets at KPMG said the proposal for the Nigerian Revenue Service (NRS) establishment may expose individuals to double taxation.
CITN President, Samuel Agbeluyi tasked experts to explain the proposal to Nigerians in a way they would understand it.
Benefits of bill
However, Mohammed Bappah, said the bill is being misconstrued and its passage is imbued with multiple benefits for the north.
He listed the benefits to include, the reduction of multiple taxation that would bring lower prices to citizens and more profit to Nigerian businesses to grow and conquer the one global market.
“The manual tax collection reduces government revenue and creates corrupt public officials. Also, collection of taxes by road blocks discourages investment and leads to anarchy. Therefore, automation of taxes brings transparency and accountability to both the leaders and the governed. Knowledge of the exact source of revenue by governors will help them protect and guard all businesses within their domain. It also eliminates hatred between the rich and the poor when the poor are aware of the taxes paid by the rich to finance all public goods by the government in his community. It also brings healthy competition among states to attract wealthy individuals and new investments.”
He added that decentralisation and non-collaboration of revenue authorities increases cost of tax collection thereby reducing availability of funds for public goods but the bills provide synergies and intelligence gathering among revenue authorities.
“Nigerian higher institutions have attained the maturity of financial autonomy and the private sector has shown capacity to build and own universities, therefore it’s time for divestment, investment of the gains to other sectors and the correction of the down side through NELFUND. The human development agencies like NITDA, TETFUND and NASENI are input approaches to development while NELFUND is result based and likely to be more effective.
He added that the reform would improve the competitiveness of Nigerian companies and citizens in the global market space thereby solving the key problems of low GDP, foreign exchange crisis and unemployment.
“However, some of the downsides of the tax reform bills are: VAT rate increase, anomalies in the VAT sharing formula among others. Notwithstanding, the advantages of the reform now outweigh its disadvantages.”
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