Governors and tax reform committee agree on revised VAT sharing formula

DDM News

After extensive discussions, the governors of Nigeria’s 36 states and the Presidential Tax Reform Committee have reached a landmark agreement on a revised formula for sharing Value Added Tax (VAT) revenue.

Diaspora digital media (DDM) gathered that the consensus, achieved during a high-level meeting on Thursday, January 16, 2025, in Abuja, addresses long-standing concerns over equitable distribution and fiscal policy reforms.

The newly adopted VAT sharing formula retains a 50% allocation based on equality, raises the derivation share from 20% to 30%, and adjusts the population-based allocation from 30% to 20%.

This proposal, spearheaded by the Presidential Tax Reform Committee chaired by Mr. Taiwo Oyedele, aims to strike a balance between equity, fairness, and efficiency in revenue distribution across the federation.

A communiqué issued after the meeting, signed by Alhaji Abdul Rahman Abdul Razaq, Governor of Kwara State and Chairman of the Nigeria Governors’ Forum (NGF), outlined the key decisions and their implications for Nigeria’s fiscal landscape.

The statement emphasized the importance of updating the tax system to ensure sustainable resource management and alignment with global standards.

“The Forum has endorsed a revised Value Added Tax (VAT) sharing formula to ensure equitable resource distribution

“50% based on equality, 30% based on derivation, and 20% based on population,” the communiqué stated.

“This new approach reflects the commitment of both the NGF and the Presidential Tax Reform Committee to foster national unity while addressing the unique fiscal challenges of individual states.”

In addition to agreeing on the VAT formula, the governors and committee members reaffirmed their commitment to modernizing Nigeria’s outdated tax policies.

They recognized the need for a robust and transparent tax system that promotes economic stability while safeguarding the welfare of citizens.

The meeting resolved that there would be no immediate increase in VAT rates or reduction in Corporate Income Tax (CIT) to maintain economic balance during this transitional period.

Another critical resolution was the continued exemption of essential goods and agricultural products from VAT.

This measure, according to the communiqué, is vital for protecting citizens’ purchasing power and ensuring food security.

The participants underscored the importance of supporting agriculture as a cornerstone of Nigeria’s economy.

The governors and committee also addressed other fiscal policies, advocating that development levies allocated to agencies like TETFUND, NASENI, and NITDA remain without terminal clauses in the proposed Tax Reform Bills.

This decision is expected to enhance the capacity of these agencies to drive innovation, education, and technological development.

The meeting welcomed the ongoing legislative processes in the National Assembly, which are expected to culminate in the passage of comprehensive Tax Reform Bills.

These bills aim to consolidate Nigeria’s tax policies, streamline revenue generation, and enhance accountability in resource allocation.

Thursday’s agreement marked a significant turning point in resolving tensions over the federal government’s proposed tax amendments.

In recent months, resistance to these amendments had grown, particularly from governors, emirs, and chiefs in northern states, who expressed concerns about potential disparities in revenue distribution.

The new VAT sharing formula represents a compromise that addresses these concerns while promoting fairness and efficiency.

The revised VAT model also signals a broader commitment to fiscal decentralization, allowing states to benefit more directly from their economic activities.

By increasing the derivation share, resource-rich states will receive a greater portion of VAT revenue generated within their territories.

Meanwhile, the reduced population-based allocation reflects an effort to ensure that states with smaller populations are not disproportionately disadvantaged.

The Nigeria Governors’ Forum and the Presidential Tax Reform Committee reiterated their shared vision for a unified and prosperous nation.

“This agreement demonstrates our collective resolve to tackle Nigeria’s fiscal challenges head-on,” the communiqué stated.

“By reforming VAT distribution and tax policies, we are laying the foundation for a more equitable and sustainable future.”

As the reforms move forward, stakeholders are optimistic that the new VAT sharing formula will address longstanding grievances while fostering collaboration between the federal and state governments.

The initiative also reflects Nigeria’s broader efforts to modernize its fiscal policies and align them with global best practices.

In conclusion, the dialogue between the governors and the Presidential Tax Reform Committee marks a pivotal step in addressing Nigeria’s fiscal challenges.

By prioritizing fairness, equity, and citizen welfare, the revised VAT sharing formula underscores the country’s commitment to achieving economic stability and national development.

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