Growing opposition threatens Tinubu’s tax reforms

Opposition voices are beginning to crush President Bola Tinubu’s tax reforms, threatening to derail one of Nigeria’s first comprehensive fiscal policies.

The tax bills successfully passed second reading in the Senate last week, but are now being branded “anti-North”, with political and business groups calling them a program to impoverish the region.

“We condemn these bills sent to the National Assembly. They will set back the North and will also affect the South East, South West and some South West states like Oyo, Osun, Ekiti and Ondo,” Babagana Zulum, Governor of Borno State, said last Friday in the northeast of the country.

In October, President Tinubu directed the National Assembly to consider and pass four tax reform bills: the Nigeria Taxation Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service Establishment Bill and the Joint Revenue Board Establishment Bill.

Also read: Tinubu’s tax reforms will reduce the burden on 90% of Nigerian workers.

The Northern States Governors Forum (NSGF) has since openly opposed the bills, with the National Economic Council (NEC) advising the President to withdraw them for further consultations.

The most controversial clause contained in Section 77 of the Nigeria Revenue Administration Bill, 2024, concerns VAT sharing formulas.

The proposed distribution is 10 percent for the federal government, 55 percent for the states and 35 percent for the local government areas (LGAs).

The section reads: “Notwithstanding any formula that may be prescribed by any other law, the net revenue generated under the operation of Chapter Six of the Nigeria Revenue Law shall be distributed as follows: (a) 10% to the federal government; (b) 55% to State Governments and the Federal Capital Territory; and (c) 35% to local governments. Provided that 60% of the amount credited to States and local authorities shall be distributed among them on the basis of derivation.

Currently, VAT revenues are shared as follows: 15 percent for the federal government, 50 percent for the states and 35 percent for local governments. States currently use a 50:30:20 formula: 50 percent for equality, 30 percent for population, and 20 percent for diversion.

The proposed increase in the VAT rate from 20 percent to 60 percent has drawn strong criticism, particularly from northern stakeholders, who say the new formula disproportionately favors southern states, particularly Lagos.

Despite the Federal Government touting the benefits of the bill, including arguments that it would reduce the tax burden on Nigerians, Northern governors are yet to be convinced.

The VAT sharing formula has deepened regional divisions. Northern governors say the proposed model harms their region’s economic interests and mainly benefits the South. They say such changes could further marginalize the North economically and have vowed to resist them.

Also Read: Tinubu’s Tax Reforms Explained in Plain Language

Opposition grows

Since the tax reform bills passed second reading in the Senate, opposition has continued to intensify.

During the debate, lawmakers, especially from the North, insisted that the bills be withdrawn, but Barau Jibrin, vice president of the Senate, who presided over the session, said the bills should be read for the second time and that all grievances should be taken into account in committee. scene.

After the bills passed, northern senators held a closed-door meeting to deliberate on next steps.

The debate extended beyond the Senate, with the intervention of sociocultural organizations. While Afenifere and Ohanaeze Ndigbo expressed support for the bills, the Arewa Youths Forum (AYF) opposed them, raising concerns about fairness, justice and the potential for disproportionate burdens on the northern region.

The Northern Youth Assembly (Majalisar Matasan Arewa), which represents northern youth in 19 states, openly attacked the Deputy Senate President for presiding over the session in which the bills were passed.

Other political figures, such as former Vice President Atiku Abubakar, have also expressed concerns over the bills. Atiku urged the National Assembly to review and publish the NEC resolutions.

Rabiu Kwankwaso, former governor of Kano State, criticized the timing of the presentation of the bills, citing Nigeria’s current economic woes.

“This is not the right time to review VAT or introduce new taxes… The government must prioritize helping the population rather than imposing additional burdens,” he said on his nickname X.

As the bills reach the committee stage amid growing opposition, their survival depends on overcoming growing divisions in the Senate and the broader political landscape.

Advantages of invoices

However, Samuel Nzekwe, an economist, applauded the bills for their potential to increase government revenue, noting that Nigeria does not collect enough revenue from VAT.

Regarding the contentious clause, he said: “I see no harm being done to the North; these are good bills.

He, however, expressed fear that the North could thwart the bills by using their numbers in the National Assembly.

Currently, there are 108 senators as the late Ifeanyi Ubah is yet to be replaced. Northern senators are in the majority with a total of 58 senators spread across the North-East, North-West and North-Central geopolitical zones.

Also read: A testing truth: will Nigeria’s reform ambitions measure up?

In the House of Representatives, 72 lawmakers opposed the bills, largely from the Northeast region. The House also postponed its debate on the bills indefinitely.

Chinedu Obi, Director General of the Inter-Party Consultative Council of Nigeria (IPAC), has urged the National Assembly not to allow politics to trump economics.

“We politicize everything, even bills with good intentions. If we have to come out of the woods, we have to approach bills differently,” he said, urging the National Assembly to pass bills that would serve the national interest.

Speaking to BusinessDay, Eze Onyekpere, Senior Director of the Center for Social Justice, said the tax reform plans are good and necessary to strengthen government revenue and boost the economy as a whole.

Onyekpere, who questioned opposition to the bills, said the bills sought to review the VAT distribution formula and ensure that state revenue remained intact.

“I don’t know why there is opposition to the bill. Under the current VAT distribution formula, the states where the industries’ headquarters are located receive the bulk of the revenue, but the bill aims to correct this by ensuring that, for example, if the headquarters of Coke- Cola is in Lagos, those that customers consume in Zamfara should be credited to Zamfara State rather than Lagos.

Auwal Musa Rafsanjani, Executive Director, Civil Society Legislative Advocacy Center (CISLAC), noted that the Nigeria Tax Bill, 2024, represents a unique opportunity to reposition Nigeria’s fiscal framework for greater equity and efficiency.

However, he urged the National Assembly and the Executive to critically evaluate and address key gaps in the bill to ensure inclusiveness, economic equity and sustainable governance.

“Proposed increases in the VAT rate – which would double by 2030 – risk exacerbating inflation and poverty. CISLAC recommends maintaining the current VAT rate of 7.5 percent until the economy stabilizes, with comprehensive measures to protect vulnerable populations from price shocks.

Also Read: Tax Reform Bills Propose New Sharing Formula, Give 55% to State Governments

“The current list of exemptions excludes critical items like cooking energy (LPG and kerosene) and electricity at the consumer level. Expanding these exemptions is essential to mitigate the regressive effects of VAT on low-income households,” he added.

Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, in a recent interview with BusinessDay, explained that the bills seek to remedy the current tax system which gives credits for VAT generated at the place where it is paid.