Presidency clarifies derivation-based VAT model amid northern governors’ opposition

The Presidency on Thursday moved to address concerns surrounding the proposed derivation-based Value Added Tax (VAT) distribution model, which has met with opposition from Northern governors.

Specifically, the Northern Governors’ Forum had expressed concerns that the proposed derivation-based VAT model would lead to job losses and disadvantage the region.

However, the Presidency reassured that the reforms will stimulate new avenues for job creation, supporting a dynamic and growth-oriented economy.

A statement issued by Special Adviser to the President on Information and Strategy, Bayo Onanuga, said the reforms aim to improve the lives of Nigerians, not undermine any part of the country.

Onanuga said the current VAT distribution model is based on where the tax is remitted, rather than where goods and services are supplied or consumed, explaining that this has led to inherent inequity in the derivation model, which the ongoing tax reform seeks to correct.

He highlighted that the new proposal before the National Assembly considers the place of supply or consumption for relevant goods and services, ensuring states in the Northern region that produce food and other essential goods are not disadvantaged.

This means that Northern states, which are major food producers, will no longer lose out on VAT revenue simply because their products are VAT-exempt or consumed in other states, he said.

Onanuga said the reforms prioritize fairness and equity, recognizing the unique contributions of each region to the national economy.

The Presidency maintained that these reforms are crucial to improving the lives of Nigerians, adding that the proposed laws will not increase the number of taxes, but instead optimize and simplify existing tax frameworks.

He said tax rates and percentages will remain the same, with a focus on ensuring equitable distribution without adding to the burden on Nigerians.

“The proposed laws aim to coordinate efforts between different tiers of government, resulting in better tax resource management and greater clarity for taxpayers,” he said.

“Under existing laws, taxes like Company Income Tax (CIT), Personal Income Tax (PIT), Capital Gains Tax (CGT), Petroleum Profits Tax (PPT), Tertiary Education Tax (TET), Value-Added Tax (VAT), and other taxing provisions in numerous laws are administered separately, with individual legislative frameworks.

“The proposed reforms seek to consolidate these multiple taxes, integrating CIT, PIT, CGT, VAT, PPT, and excise duties into a unified structure to reduce administrative fragmentation.

“On the proposed derivation-based VAT distribution model, which the Northern Governors oppose, it must be stressed that the new proposal, as enunciated in the Bill, is designed to create a fairer system.

“The current model for distributing VAT is based on where the tax is remitted rather than where goods and services are supplied or consumed. The ongoing tax reform seeks to correct the inherent inequity in the current derivation model as a basis for distributing VAT revenue.

“The new proposal before the National Assembly outlines a different form of derivation which considers the place of supply or consumption for relevant goods and services.

This means that states in the Northern region that produce the food we eat should not lose out just because their products are VAT-exempt or consumed in other states.

READ ALSO: Derivation-based model for VAT not against the North – Expert

“These reforms are critical to improving the lives of Nigerians and were not put forward by President Tinubu to undermine any part of the country.

“There is no better time than now for the National Assembly to give due consideration to these bills that will overhaul our tax systems and create the revenue all the tiers of government require to fund the development our country and people urgently need.

“These reforms emerged after an extensive review of existing tax laws. The National Assembly is considering four executive bills designed to transform and modernise Nigeria’s tax landscape.

“First is the Nigeria Tax Bill, which aims to eliminate unintended multiple taxation and make Nigeria’s economy more competitive by simplifying tax obligations for businesses and individuals nationwide.

“Second, the Nigeria Tax Administration Bill (NTAB) proposes new rules governing the administration of all taxes in the country. Its objective is to harmonise tax administrative processes across federal, state and local jurisdictions for ease of compliance for taxpayers in all parts of the country.

“Third, the Nigeria Revenue Service (Establishment) Bill seeks to rename the Federal Inland Revenue Service (FIRS) as the Nigeria Revenue Service (NRS) to better reflect the mandate of the Service as the revenue agency for the entire federation, not just the Federal Government.

“Fourth, the Joint Revenue Board Establishment Bill proposes the creation of a Joint Revenue Board to replace the Joint Tax Board, covering federal and all states’ tax authorities.

“The fourth bill also suggests establishing the Office of Tax Ombudsman under the Joint Revenue Board, which would serve as a complaint resolution body for taxpayers.

“It is instructive to note that these proposed laws will not increase the number of taxes currently in operation. Instead, they are designed to optimise and simplify existing tax frameworks.

“The tax rates or percentages will remain the same under these reforms, as they focus on ensuring a more equitable distribution of tax obligations without adding to the burden on Nigerians.

“The reforms will not lead to job losses. On the contrary, they are structured to stimulate new avenues for job creation by supporting a dynamic, growth-oriented economy.

“Importantly, these laws will not absorb or eliminate the duties of any existing department, agency, or ministry. Instead, they aim to harmonise revenue collection and administration across the federation to ensure efficiency and cooperation.

“At the moment, tax administration lacks coordination among federal, state, and local tax authorities, often resulting in overlapping responsibilities, confusion, and inefficiency. Without reform, this inefficiency will persist.”