Nigeria’s Governors’ Forum pushes for bold tax reforms, sparking a national debate on revenue sharing, equity, and economic stability. Can they deliver lasting change?
Nigeria Governors’ Forum Sets the Stage for Transformative Tax Reforms
ABUJA, Nigeria — The Nigeria Governors’ Forum (NGF) has taken a daring move into the fiscal sphere after consulting with the Presidential Tax Reform Committee at the subnational level and releasing a historic statement. On January 16, 2025, the forum convened state governors and fiscal policy specialists to discuss tax reform, one of the most important and controversial topics in the country. Given the risk to Nigeria’s fiscal stability, the NGF has taken a strong stance in modernising the nation’s antiquated tax code, setting the stage for what may be the most significant change in economic policy in decades.
In an era where Nigeria’s economic challenges have reached fever pitch, this communique is far more than a technical document. It represents a roadmap for economic stabilisation, equity, and an attempt to align with global best practices in tax administration. At its heart, the NGF seeks to overhaul a tax system riddled with inefficiencies, inequities, and outdated mechanisms that have long been a drag on the country’s development potential.
A Clarion Call for Comprehensive Tax Reforms
The NGF’s communique begins with a strong endorsement of comprehensive tax reform, signalling a consensus among governors that the status quo is no longer sustainable. Decades of neglect and mismanagement have left Nigeria’s tax system woefully inadequate for addressing the economic realities of the 21st century. The governors’ unified stance underscores their recognition of the need for a system that not only generates revenue efficiently but also distributes resources equitably among the states.
The current tax architecture has been a source of perennial debate, with critics pointing to its failure to adequately capture the nation’s vast informal economy. According to the World Bank, over 65% of Nigeria’s GDP stems from informal sectors, which remain largely untaxed. The NGF’s call for reforms is thus timely, especially as the nation grapples with declining oil revenues, rising inflation, and the fallout from controversial subsidy removals.
The VAT Sharing Formula: Towards Fiscal Equity
Central to the NGF’s resolutions is their endorsement of a revised Value Added Tax (VAT) sharing formula. This formula proposes a redistribution of VAT revenues with 50% allocated based on equality, 30% based on derivation, and 20% based on population. While the formula is intended to address long-standing grievances over resource allocation, it is not without controversy.
The principle of derivation has always been a flashpoint in Nigeria’s federal structure. Resource-rich states like Rivers and Akwa Ibom have argued for greater control over the revenues generated within their borders, while less endowed states rely heavily on federal allocations for survival. By assigning 30% of VAT revenue based on derivation, the NGF aims to strike a balance that acknowledges the contributions of resource-rich states while maintaining national unity.
However, the inclusion of population as a criterion for revenue allocation has reignited debates about the accuracy of Nigeria’s census data and its manipulation for political advantage. Critics argue that relying on potentially flawed population figures could perpetuate existing inequities and marginalise smaller states. These concerns highlight the complexities of designing a truly equitable fiscal framework in a country as diverse as Nigeria.
A Measured Approach to VAT and Corporate Income Tax
Another key aspect of the communique is the NGF’s decision to maintain the current VAT rate and Corporate Income Tax (CIT) levels. This cautious approach reflects an acute awareness of Nigeria’s fragile economic state, where any increase in VAT could exacerbate inflation and deepen the cost-of-living crisis.
By advocating for the continued exemption of essential goods and agricultural produce from VAT, the governors aim to cushion the impact of tax policies on the most vulnerable populations. This stance aligns with broader efforts to promote agricultural productivity and food security, which are critical to Nigeria’s long-term economic resilience.
While the decision to hold the line on tax rates may provide short-term relief, it also raises questions about the sustainability of Nigeria’s revenue base. With oil revenues dwindling and the country heavily reliant on borrowing, the NGF’s proposals must be scrutinised for their ability to generate the funds needed for infrastructure development, public services, and debt servicing.
A Lifeline for Development Agencies
In a move that underscores the NGF’s commitment to national development, the communique recommends the removal of terminal clauses for key agencies like the Tertiary Education Trust Fund (TETFUND), the National Agency for Science and Engineering Infrastructure (NASENI), and the National Information Technology Development Agency (NITDA). These institutions have played pivotal roles in advancing education, technological innovation, and infrastructure development.
The NGF’s insistence on sustained funding for these agencies reflects an understanding of the critical role they play in driving economic diversification and reducing dependency on oil. However, questions remain about the efficiency and transparency of these agencies, as well as the mechanisms through which funds will be allocated and monitored.
Legislative Backing for Reform
The NGF’s communique concludes with a call for the continuation of legislative efforts to enact the Tax Reform Bills currently under consideration by the National Assembly. This is a crucial step in institutionalising the proposed reforms and ensuring their implementation. The governors’ support for these bills signals a willingness to engage constructively with federal lawmakers, but it also places the onus on the National Assembly to act swiftly and decisively.
As the debate over tax reform unfolds, it is clear that the NGF’s communique is just the beginning of a long and contentious journey. The proposals outlined in this document will face scrutiny from a wide range of stakeholders, including civil society groups, private sector actors, and international development partners.
The Uncharted Path to Nigeria’s Tax Revolution
The Nigeria Governors’ Forum (NGF) has thrown down the gauntlet with its bold tax reform proposals, but the path to implementation is fraught with challenges that could determine the success or failure of this historic initiative. At stake is not just the modernisation of Nigeria’s fiscal policies but the very foundation of its economic stability and unity as a federation.
The Political Quagmire of Revenue Sharing
The proposed Value Added Tax (VAT) sharing formula—50% equality, 30% derivation, and 20% population—is already igniting heated debates. Resource-rich states, particularly in the oil-producing Niger Delta region, view the 30% derivation clause as insufficient compensation for their contributions. Meanwhile, northern states, traditionally less endowed but often deemed more populous, have expressed concerns about losing federal allocations critical to their survival.
The NGF’s attempt to strike a balance between equality, derivation, and population raises fundamental questions about fairness and sustainability. Critics argue that the formula may inadvertently entrench existing inequalities, particularly if population figures—already a contentious issue in Nigeria—are used without rigorous verification. The debate underscores the urgent need for transparent governance, accurate data collection, and a national conversation about resource control.
Economic Growth or Policy Paralysis?
While the NGF’s decision to maintain the current VAT rate and Corporate Income Tax (CIT) appears prudent, it also signals a missed opportunity to broaden the tax base. Nigeria’s tax-to-GDP ratio remains among the lowest globally, hovering around 6%, compared to an African average of 17%. Critics contend that without bold steps to expand the tax net, the country risks perpetuating its reliance on volatile oil revenues and unsustainable borrowing.
The exemption of essential goods and agricultural produce from VAT is a politically savvy move designed to protect vulnerable populations, but it also highlights a deeper issue: the pervasive informality of Nigeria’s economy. Experts have long called for reforms that would bring the informal sector into the tax net without stifling its growth. The NGF’s communique, while well-intentioned, offers little clarity on how this critical objective will be achieved.
Development Agencies: Lifeline or Liability?
The NGF’s recommendation to sustain funding for TETFUND, NASENI, and NITDA is a double-edged sword. On one hand, these agencies play indispensable roles in education, innovation, and infrastructure development. On the other hand, their operations have been marred by allegations of inefficiency, corruption, and political interference.
Skeptics argue that merely removing terminal clauses for these agencies without addressing systemic issues could amount to throwing good money after bad. For the NGF’s vision to succeed, these institutions must be held to the highest standards of accountability and performance. This will require not just legislative oversight but also active participation from civil society and the private sector.
Legislative Bottlenecks: A Critical Test
The NGF’s call for the passage of the Tax Reform Bills by the National Assembly is an acknowledgment of the legislative hurdles that lie ahead. The bills, which seek to institutionalise the proposed reforms, are likely to face resistance from lawmakers representing constituencies that perceive themselves as disadvantaged by the new revenue-sharing formula.
The legislative process is further complicated by the broader political landscape, where the interests of state governors often clash with those of the federal government. The NGF’s ability to build consensus and navigate these tensions will be a critical factor in determining whether these reforms see the light of day.
A Pivotal Moment for Nigeria
The NGF’s communique is a bold statement of intent, but its success hinges on execution. The proposed reforms must address not only technical and administrative challenges but also the deeper socio-political divisions that have long plagued Nigeria.
For many Nigerians, the communique is a litmus test of the political will to drive meaningful change. Will the NGF rise above sectional interests to deliver a tax system that works for all? Or will the reforms become another casualty of Nigeria’s entrenched political and economic inertia? The coming months will provide the answers.
Additional reports by: Taiwo Adebowale and Osaigbovo Okungbowa
Atlantic Post Senior Business and Political Correspondents, respectively.
