In a pivotal endorsement for fiscal reform in Nigeria, Taiwo Oyedele, chairman of the Presidential Committee on Tax Policy and Fiscal Reforms, has declared the committee’s support for the Nigeria Governors’ Forum (NGF) proposed adjustment to the value-added tax (VAT) sharing formula. Oyedele’s remarks came during a key address at The Platform, an event organized by The Covenant Nation on January 18, 2025, designed to foster national development discussions.
The new VAT sharing proposal emerged from a series of discussions between the NGF and Oyedele’s committee, with the formula set to address ongoing fiscal imbalances and promote a more equitable distribution of VAT revenues across the country. While the original VAT-sharing framework, proposed by Oyedele’s committee, was designed to distribute 60% of VAT revenues based on derivation, 20% by population, and 20% on equality, the NGF introduced its own modified version. The revised formula advocated for 50% to be distributed equally across states, 30% based on derivation, and 20% according to population.
According to Oyedele, the government’s endorsement of the NGF’s proposal signifies a pragmatic approach to governance, balancing fiscal responsibility with political realities. Speaking candidly at the event, he acknowledged the political complexities inherent in such reforms: “Reforms anywhere in the world are not just about what is technically correct, as political considerations are also factored in,” he said.
This shift, prompted by the differing interests of Nigeria’s regional governors, reflects ongoing disagreements, particularly from northern states, which have voiced concerns that the original formula disproportionately favored oil-producing states in the Niger Delta region. The northern governors had previously criticized the formula, claiming that it left their states at a disadvantage in the allocation of VAT funds, given that their economies are less reliant on oil revenues.
Oyedele, however, emphasized that the process of reforming Nigeria’s VAT distribution should be viewed incrementally. “You also need to consider other things, including political considerations, and so once the governors proposed their formula for sharing the VAT revenue, we have no objections to that,” he explained. His statement highlights the gradual nature of tax reforms, where comprehensive shifts might take time but are necessary to ensure wider acceptance and sustainability.
The Road to Reform
The revised VAT-sharing proposal has been hailed as a significant step in Nigeria’s ongoing push for tax reforms, which aim to improve revenue generation, streamline the country’s fiscal policy, and address regional disparities. These developments are part of a broader effort spearheaded by President Bola Tinubu’s administration, which in October 2024, called on the National Assembly to consider four major tax reform bills. These bills include the Nigeria Tax Bill, the Tax Administration Bill, the Joint Revenue Board Establishment Bill, and an initiative to replace the Federal Inland Revenue Service (FIRS) with a new entity: the Nigeria Revenue Service.
The VAT-sharing issue has been a contentious topic for years, with various regional leaders arguing that the system disproportionately benefits certain states at the expense of others. The NGF’s modified proposal seeks to balance the distribution, acknowledging the need for equity across the board while also addressing the unique fiscal needs of resource-rich states.
Oyedele stressed that the reform was not solely about numbers but about aligning Nigeria’s tax system with broader economic goals. “All sectors will be positively impacted, particularly agriculture and manufacturing, as well as industries generally,” he noted. He pointed out that certain sectors, especially those marked as “priority sectors” in the tax bills, would receive specific incentives under the new tax regime. These sectors include power generation, innovation, and other critical industries identified as key drivers for Nigeria’s economic transformation.
While some observers have expressed skepticism over the impact of such reforms, Oyedele’s remarks suggest that there is a growing consensus among policymakers that strategic, phased reforms are the way forward. This approach, he suggests, will allow for careful monitoring and adjustments as needed. “You take a breather, reflect, have more data, and then you move again,” he advised, underscoring the need for a steady yet resolute approach to tax and fiscal reform.
A Ripple Effect on Nigeria’s Economy
The proposed changes in VAT distribution are expected to have wide-reaching consequences, not only for the states but also for key industries. Oyedele pointed out that the redistribution of VAT revenues will likely boost sectors such as agriculture, manufacturing, and innovation—areas where Nigeria has traditionally seen growth potential but has been hindered by inadequate government support and underfunded infrastructure. With these sectors now set to benefit from more balanced fiscal policies, Nigeria’s economic trajectory could shift toward sustainable, diversified growth.
One of the core components of the reform plan is the introduction of “priority sector incentives,” aimed at revitalizing industries critical to the country’s long-term development. These sectors, identified in the tax reform bills, will receive targeted support to encourage growth in areas like power generation, agriculture, and innovative technology. By creating an environment conducive to the growth of these sectors, the government hopes to not only address current economic challenges but also lay the groundwork for future prosperity.
As the bills move through the National Assembly, lawmakers will have to decide whether the new VAT-sharing formula is the right solution to Nigeria’s fiscal imbalance. For now, however, the endorsement from Oyedele and the Presidential Tax Reform Committee suggests that the government is committed to a balanced, multi-pronged approach to tax reform—one that considers both the technical and political dimensions of governance.
Political Reactions
Notably, the northern governors have remained vocal about their opposition to the original formula, with many arguing that it risks leaving the north disadvantaged in the distribution of VAT revenues. Their concerns stem from the fact that states like Lagos, Rivers, and Delta—oil-producing states—generate a substantial portion of Nigeria’s VAT revenues. These states, under the original formula, would stand to benefit disproportionately, further exacerbating regional tensions.
However, the NGF’s revised proposal appears to have struck a middle ground, offering an equal distribution of 50% while still recognizing the importance of derivation and population in allocating the remaining 50%. This revised formula aims to ensure fairness and address the concerns of northern states while still recognizing the economic contributions of resource-rich regions.
In light of these political dynamics, Oyedele’s comments reflect an understanding of the broader implications of tax policy reform in Nigeria. By advocating for a gradual approach to the reforms, he acknowledges the delicate balancing act required to navigate Nigeria’s diverse economic and political landscape.
