The Northern Governors Forum, led by Gombe State Governor Muhammed Inuwa Yahaya, rejects the proposed derivation-based model for Value Added Tax (VAT) distribution included in a new tax bill currently under consideration in the National Assembly.
In a statement following a meeting of Northern state governors and elders, the Forum expresses concern that the proposed model undermines the interests of Northern states and other subnational entities. The Forum urges National Assembly members to oppose any legislation that threatens the welfare of Northern citizens.
The statement highlights dissatisfaction with the Tax Reform Bill, specifically criticizing the proposed amendment to VAT distribution. The Forum emphasizes that VAT is remitted based on the location of companies’ headquarters rather than where services are rendered, which disadvantages Northern states.
The current VAT distribution formula, as outlined in Section 40 of the VAT Act, allocates 15% to the Federal Government, 50% to States and the Federal Capital Territory, and 35% to Local Governments, incorporating a minimum 20% derivation principle.
In response to perceived inequities in VAT distribution, several Southern states voice their grievances, claiming they receive an unfair share. Notably, in 2021, Rivers State successfully contests the Federal Inland Revenue Service (FIRS) in court, asserting its right to collect VAT within its jurisdiction. This ruling allows states to manage VAT collections, with the FIRS overseeing VAT in the FCT and non-import foreign transactions, while the Nigeria Customs Service handles import VAT. The FIRS appeals this decision.
