A recent survey by SBM Intelligence has raised concerns over the federal government’s proposed tax reforms, particularly regarding their failure to account for the unique characteristics of various Nigerian regions. While the reforms aim to reduce the tax burden on citizens and enhance tax collection efficiency, the survey warns that overlooking regional disparities could deepen existing economic inequalities in the country.
The survey, which covered Nigeria’s geopolitical zones, underscores how the tax reform bills, if enacted without regional considerations, might intensify economic imbalances, potentially requiring intervention from the Supreme Court or constitutional amendments.
The VAT Disparity
One of the main points of contention in the survey revolves around Nigeria’s Value Added Tax (VAT) system. The report highlights how VAT distribution has become increasingly controversial, with significant discrepancies in how much revenue states contribute versus what they receive. For instance, between January and October 2024, Imo State received a staggering 1,715.9% of what it contributed to the VAT pool, while Lagos, which contributes about 55% of the local VAT, received only 16.76% of its contribution. Similarly, Rivers received 22% of its contribution.
The disparities are even more pronounced in the northeast, where states like Bauchi received up to 384.94% of their VAT contributions, while others like Adamawa received 165.69%. These imbalances raise concerns about the potential for exacerbating regional economic disparities, especially if the reforms do not address these inequalities.
Calls for Intervention
Given the complexity of Nigeria’s VAT system, the report suggests that the Supreme Court may once again be called upon to settle disputes regarding the fiscal powers of states and regions. The legal precedents surrounding VAT, including the Supreme Court’s affirmation of VAT’s precedence over state sales and consumption taxes, illustrate the challenges of balancing federal and state interests.
The report also points to growing dissatisfaction, particularly from states like Lagos and Rivers, that are calling for more control over the revenue generated within their territories. It suggests that the proposed reforms, which include revising VAT rates and exemptions and increasing derivation-based allocations, could offer solutions but may still require legal clarity to resolve the ongoing disputes.
Regional Tensions and the North-South Divide
The survey also touches on the broader political and fiscal tensions between Nigeria’s northern and southern regions. The current VAT debate highlights a persistent North-South divide, with northern elites, including the Northern Governors Forum, expressing opposition to the tax reforms. They argue that the proposed changes could undermine the economic interests of the northern states.
Similarly, the National Economic Council (NEC), comprising all 36 state governors, has called for the withdrawal of the bills for further consultations. Despite these concerns, President Bola Tinubu has pushed forward with the legislative process, asserting that input from stakeholders can be incorporated during public hearings.
Political Impasse
Amid these disagreements, the Nigerian Senate suspended hearings on the tax reform bills on December 4, 2024, until the new year. This suspension is seen as an opportunity for political engagement and negotiations to address the concerns raised by various interest groups and secure the passage of the bills.
The Road Ahead
The SBM Intelligence report concludes that the tax reform process needs to be more inclusive, addressing the unique fiscal challenges faced by different regions. It suggests that only through careful negotiation and reform can Nigeria create a tax system that promotes equity, regional development, and national unity.
The path forward will likely require a comprehensive approach that balances derivation, equity, and the need for national cohesion—ensuring that the tax system supports sustainable economic growth and addresses the disparities that currently exist between Nigeria’s regions.
