The Federal Government’s proposed Tax Reform Bill, which seeks to alter Nigeria’s Value Added Tax (VAT) derivation formula, has ignited widespread debate about its potential to transform regional equity in revenue distribution.
Advocates contend that the reform could resolve historical inequalities in the distribution of resources, which would have a significant impact on Nigeria’s economic development and unity as a nation.
During a House of Representatives session, Dr Zacch Adedeji, Executive Chairman of the Federal Inland Revenue Service (FIRS), articulated the need for a consumption-based VAT system.
“VAT is a consumption tax,” Dr Adedeji explained, “and its revenue should reflect where goods and services are consumed, not where transactions are recorded.”
Under the current VAT framework, revenue allocation disproportionately favours states housing corporate headquarters or production hubs. Lagos, for instance, accounts for 42% of VAT collections, while Rivers and the Federal Capital Territory (FCT) follow with 16% and 9%, respectively. Conversely, states such as Borno and Bauchi receive less than half a per cent each.
The proposed reform seeks to shift the revenue distribution paradigm by prioritising consumption over production. Advocates highlight its potential to level the playing field for states with large populations but lower industrial activities.
“This change could empower underserved regions to invest in education, healthcare, and infrastructure,” said Arabinrin Aderonke Atoyebi, a media aide to Dr Adedeji.
However, concerns linger as states like Lagos and Rivers, which currently benefit from higher VAT revenue, may face budgetary constraints under the new formula.
Critics worry this could delay infrastructure projects and public services. Proponents, however, argue that the long-term gains—bridging regional inequalities and fostering unity—far outweigh the short-term challenges.
Dr Adedeji’s reform efforts align with President Bola Ahmed Tinubu’s Renewed Hope Agenda. By ensuring fair resource allocation, the government aims to promote sustainable growth and diminish regional disparities.
“This reform is about creating a Nigeria where every region can succeed,” Dr Adedeji emphasised.
There is a lot of public interest in the proposed VAT redistribution plan. It provides a preview of a time when Nigeria’s wealth will be distributed more fairly across its various regions.
