Kano state, The economic capital of Northern Nigeria is poised to emerge as one of the biggest gainers under the proposed Tax Reforms bill as Kano’s VAT derivation receipt is set to soar by an impressive 600% signaling a significant shift in the nation’s fiscal landscape.
Proposed Tax Reforms Bill
The proposed reforms aim to overhaul Nigeria’s tax system by streamlining tax administration and boosting both revenue collection and compliance across the country. Key elements of the bill include the Nigeria Tax Bill 2024, the Nigeria Tax Administration Bill, the Joint Revenue Board (Establishment) Bill, and the Nigeria Revenue Service (Establishment) Bill.
The Nigerian Tax Bill 2024 seeks to eliminate multiple taxation and make Nigeria’s economy more competitive by simplifying tax obligations for businesses and individuals nationwide. The Nigerian Tax Administration Bill seeks to harmonize Nigeria’s tax administrative processes across federal, state and local levels to ease taxpayers’ compliance and increase revenue for all levels of government.
The Nigeria Revenue Service (Establishment) Bill proposes transforming the Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service (NRS), signaling its role as the revenue authority for the entire country, not just the federal government. The Joint Revenue Board Establishment Bill, in turn, aims to replace the Joint Tax Board with a Joint Revenue Board that would include both federal and state tax authorities.
Political Controversy
Despite its potential for wide-reaching benefits, the bill has sparked significant debate, particularly among northern lawmakers and political leaders. Some, including prominent figures like Ali Ndume and Aminu Tambuwal, have voiced strong opposition, arguing that the proposed VAT sharing formula could marginalize the North and exacerbate regional inequalities.
Existing VAT Derivation Model
Under the existing VAT derivation system, states such as Lagos and Rivers—hosting key corporate headquarters and major ports—receive the lion’s share of VAT allocations. Lagos, for example, currently receives 80.26% of the VAT distribution, while Rivers accounts for 7.74%, together making up a staggering 88% of VAT receipts designated for states.
This has led to stark disparities, with many other states receiving minimal or no VAT revenue, a situation the new bill seeks to address.
Proposed VAT Derivation Model
The proposed changes to the VAT derivation system aim to create a more equitable distribution, rewarding states for their economic contributions rather than favoring locations with corporate headquarters or port facilities.
Under the new model, states would receive VAT revenues based on goods consumed within their own territories, rather than where companies are registered.
Among the biggest winners in this new derivation model is Kano which which stands to see a 594% increase in its VAT receipts, followed by states like Zamfara (2,426%), Delta (444%), and Sokoto (486%).
Proposed VAT Reform Benefit the North
Despite the vocal opposition from northern political figures, the proposed bill could ultimately benefit the region more than it perceives. With Kano and other northern states poised to see a significant financial boost, the resistance to the bill may be misdirected, failing to acknowledge the long-term economic advantages it offers.