The Northern Governors Forum, led by Gombe State Governor Muhammed Inuwa Yahaya, has firmly rejected the proposed derivation-based model for Value Added Tax (VAT) distribution outlined in the new tax bill currently being discussed in the National Assembly. In a communique following a meeting of Northern state governors and elders, the Forum expressed concerns that the proposed model undermines the interests of the North and other sub-national entities.
The Forum’s statement highlighted its dismay over the recent Tax Reform Bill, emphasizing that the proposed amendment to VAT distribution contradicts the economic realities of the region. “The Forum notes with dismay the content of the recent Tax Reform Bill. The proposal to amend the VAT distribution to a derivation-based model is against the interests of the North and other sub-nationals. Companies remit VAT based on the location of their headquarters and tax office, not where services and goods are consumed,” the statement read. The Forum unanimously called on National Assembly members to reject any legislation that threatens the welfare of Northern citizens.
The contentious tax bill seeks to introduce a derivation principle for distributing VAT revenues between the federal government and sub-nationals. Currently, Section 40 of the VAT Act allocates 15% to the Federal Government, 50% to states and the Federal Capital Territory (FCT), and 35% to local governments. This distribution includes a derivation principle that ensures at least 20% is allocated to states and local governments. Other influencing factors include 50% based on equality and 30% based on population, with collection fees allocated to the Federal Inland Revenue Service (FIRS) and Nigeria Customs Service (NCS).
Dissatisfaction over the existing VAT distribution formula has been a point of contention, particularly among Southern states, which argue they do not receive a fair share. In 2021, Rivers State took legal action against the FIRS, resulting in a judgment favoring the state’s right to collect VAT. This ruling implied that each state would manage VAT within its territory, with the FIRS overseeing VAT administration in the FCT and for non-import foreign transactions, while the NCS would collect VAT on imports. However, the FIRS later successfully appealed this decision in the appellate court.
As the debate over VAT distribution continues, the Northern Governors Forum remains steadfast in its position, advocating for a fair and equitable tax system that prioritizes the needs of their constituents.
