VAT Reform Sparks Political and Economic Tensions Between Northern States and Federal Government

A heated disagreement has erupted between Northern political elites and the Federal Government over Nigeria’s proposed tax reform bill, particularly changes to the Value Added Tax (VAT) Act. ...CONTINUE READING>>>

The contentious reform seeks to adopt the derivation principle for VAT distribution, allocating revenue based on where goods and services are consumed or where tax-generating businesses are headquartered.

Northern leaders argue this reform disproportionately favors Southern states, where most major companies and consumption activities are concentrated.

They fear a drastic reduction in the North’s share of VAT revenue, which could exacerbate existing economic disparities. Senator Kawu Samaila of Kano South District emphasized the need for comprehensive dialogue to address the North’s broader developmental challenges beyond tax reform.

Public affairs analyst Dr. Majeed Dahiru explained that Northern governors’ opposition stems from concerns about the derivation principle rather than the reform itself.

He noted that while the model encourages fairness by linking revenue to consumption, it could diminish Northern states’ financial allocations.

Advocates, however, describe the reform as a progressive step toward equitable revenue distribution, suggesting it could stimulate productivity and fairness in the economy.

Policy analyst Baba Yusuf criticized Northern leaders for prioritizing short-term revenue over long-term economic progress. He argued that allocating resources based on derivation could promote value creation and innovation.

Similarly, Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, acknowledged the political undertones of the debate, stating, “This issue is more political than economic, reflecting regional apprehensions over potential financial losses.”

Amid growing public distrust in government intentions, activists like Dr. Ibrahim Zikirullahi highlighted broader issues such as subsidy removal, inflation, and high living costs. He urged the government to rebuild trust by addressing transparency and sincerity concerns.