Nigeria: Tax Reforms Bill Fails to Address Nigeria’s Regional Disparities – Report

A recent survey by SBM Intelligence has criticized the federal government’s proposed tax reforms, arguing that they fail to consider the unique socioeconomic characteristics of Nigeria’s diverse regions. This oversight, the report suggests, could deepen existing economic disparities and heighten tensions over resource distribution.

The report acknowledges the reforms’ intent to reduce the tax burden on citizens and streamline tax collection, as highlighted by Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee. However, it cautions that neglecting regional peculiarities could necessitate intervention by the Supreme Court or require constitutional amendments to address fiscal inequities.

Regional Disparities in VAT Allocation

The survey, conducted across Nigeria’s geopolitical zones, emphasizes the contentious nature of Value Added Tax (VAT)allocation. It notes that only five states—Anambra, Cross River, Lagos, Ogun, and Rivers—could meet their financial obligations without federally distributed revenue.

The report details stark disparities in VAT contributions and allocations:

• Imo State received 1,715.9% of its VAT contribution as allocation between January and October 2024.
• Abia, Cross River, and Kebbi received over 700% of their contributions.
• In contrast, Lagos, contributing approximately 55% of local VAT, received just 16.76%, while Rivers received 22%.

In the Northeast, states received an average of 244.46% of their VAT contributions, with Bauchi receiving 384.94% and Adamawa receiving 165.69%. These figures underscore the uneven distribution of VAT revenues, raising concerns about economic equity across regions.

Historical and Legal Context

The report traces the evolution of Nigeria’s VAT system, which replaced the Sales Tax Decree of 1986, aiming to enhance fiscal efficiency and equity. However, disputes over VAT allocations and control have persisted, often leading to litigation.

Recent cases, such as those initiated by Rivers and Lagos, reflect growing demands for state autonomy over locally generated revenues. While the Supreme Court has historically upheld federal VAT precedence over state-level taxes, these legal challenges highlight unresolved tensions in Nigeria’s fiscal framework.

Proposed Reforms and Future Implications

The proposed tax reforms seek to address some of these issues by revising VAT rates and exemptions, simplifying tax structures, and increasing allocations based on derivation. Yet, the report predicts that a lasting resolution may require either a definitive Supreme Court ruling or a constitutional amendment to clarify the division of fiscal powers between federal and state governments.

The VAT debate also illuminates broader North-South disparities in economic activity and development. According to the report, resolving these fiscal tensions requires reforms that balance derivation, equity, and national cohesion to foster regional development and unity.