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Why Northern Governors Oppose Derivation-Based VAT – Nasarawa Gov

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Nasarawa State Governor, Abdullahi Sule, has revealed that the Northern Governors Forum (NGF) has firmly opposed the new Value Added Tax (VAT) bill currently under discussion in the National Assembly.

All 19 governors in the northern region, across party lines, have united against a proposal that would distribute VAT revenue based on the derivation model, which they argue would be “unfair” to states with lower VAT-generating capacities.

The opposition from northern governors has added another layer of complexity to Nigeria’s tax reform debate, with both northern and southern states divided over what they see as fair revenue-sharing practices.

The governors’ stance raises a contentious question about economic equity, state development, and the future of VAT allocation in Nigeria.

Speaking in an interview on Channels Television’s Politics Today, Governor Sule highlighted the unified stance among the northern governors. The NGF meeting, chaired by Gombe State Governor Inuwa Yahaya, concluded with an overwhelming consensus that a derivation-based VAT distribution model would place northern states at a significant disadvantage.

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“Our position is not in opposition to President Tinubu,” Governor Sule stressed, “We brought President Tinubu to power, and our decision reflects unity across party lines and regional leadership.”

The derivation model, which allocates VAT based on where it is generated, would primarily benefit states like Lagos and Rivers, where commercial activities are concentrated. These southern states argue that the derivation approach would ensure they retain more revenue from the taxes collected within their borders, which they say is only fair given their higher levels of economic activity.

Governor Sule countered this view, explaining, “Most VAT is generated in states with major ports or manufacturing hubs, such as Lagos. Northern states contribute little VAT due to limited industrial activity. Adopting a derivation model would mean these states receive less federal revenue while other states benefit.”

For northern states, VAT has been a crucial source of funding, especially in the face of limited industrial and commercial infrastructure. The new VAT model, according to northern governors, would only deepen the economic disparity between regions, leaving northern states further behind.

Economic Disparity and Calls for Equity

The VAT reform debate has spotlighted the longstanding economic imbalance in Nigeria, with much of the country’s wealth concentrated in a few southern states. Governor Sule’s concerns echo fears among northern leaders that the proposed model could reduce their share of federal revenue, hindering development and infrastructure improvements.

Many southern states, however, argue that they have been subsidizing the rest of the country for years. Lagos State, for instance, generated more than half of Nigeria’s VAT revenue in 2023, yet received only a fraction of it back due to the existing revenue-sharing formula.

“This proposal is about fairness,” said a spokesperson from the Lagos State Ministry of Finance. “It’s only reasonable that states generating the VAT should retain more of it for local development and services.”

Reactions Spark National Debate

The northern governors’ stance has sparked mixed reactions, with many Nigerians taking to social media to express their views. Some northern residents support their leaders, emphasizing the need for federal support given the region’s economic challenges.

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Others, particularly in the south, have criticized the northern governors, arguing that their position relies on an outdated model that promotes economic dependency. “Why should Lagos generate the revenue and then share it with states that refuse to industrialize?” questioned a resident of Rivers State. “If we generate it, we should keep it.”

The debate has grown heated, with accusations of unfairness and entitlement flying between supporters on both sides of the issue.

Religious and Cultural Tensions Surface

The VAT reform debate has also drawn attention to the cultural differences in revenue generation. Some southern citizens argue that northern states, many of which restrict alcohol sales under Sharia law, should not receive a share of VAT generated from alcohol sales in the south. Alcohol sales contribute significantly to VAT revenue in the south but are banned or restricted in many northern states.

“It’s hypocritical,” said one commenter. “The northern states destroy alcohol but benefit from the VAT revenue it generates. If they don’t support it, they shouldn’t get a share of the proceeds.”

“Equity is the Goal,” Says Governor Sule

Governor Sule, however, dismissed such arguments, reiterating the northern governors’ commitment to an equitable distribution model that accommodates the economic differences across regions. “We are not saying we want to take from the south,” he clarified, “We are only asking for a model that allows all states to thrive.”

Governor Sule emphasized that northern governors are not asking for preferential treatment, only an approach that ensures fairness to less economically developed states. He explained that VAT revenue, unlike oil revenue, should benefit the entire nation, particularly in a system where VAT is meant to support federal budgets and public services.

Tax Reforms and Federalism in Nigeria

This VAT debate comes at a time when Nigeria is exploring deeper federalism. Some political analysts suggest that a derivation-based model aligns more closely with a federalist approach, where each state has greater control over its resources. Supporters of the model argue that states should have more autonomy in managing their finances and resources, while detractors, particularly in the north, contend that the approach could widen the economic gap between regions.

“This is a matter of balancing federalism and unity,” said Dr. Adebayo Olagunju, a political analyst. “Both sides have valid concerns, but without compromise, this debate may further polarize the country.”

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