October 29, 2024

PRESS STATEMENT
PRESIDENT TINUBU’S PROPOSED TAX REFORMS: A PATHWAY TO SUSTAINABLE DEVELOPMENT FOR ALL REGIONS OF NIGERIA

The Development Agenda for Western Nigeria (DAWN) Commission has carefully reviewed the concerns expressed by the esteemed members of the Northern Governors Forum regarding the proposed Tax Reform Bill, particularly as it relates to Value Added Tax (VAT) distribution. We believe it is crucial to address these concerns while maintaining our commitment to Nigeria’s collective progress.

First, we acknowledge the Northern Governors’ legitimate concern for the people’s well-being. However, a thorough analysis of the proposed reforms reveals that they present significant opportunities for sustainable development across all Regions, including the North, which eventually stands to be the biggest beneficiary because it has two factors of production, land and population, in significant abundance compared to the Southern States.

Let us address several critical aspects of these reforms:
1. Strengthening the link between ‘need’ and ‘contribution’
The concern about headquarters-based remittance, while understandable, requires deeper examination in light of current economic realities. Recent data reveals a significant disparity in VAT generation across States, with Lagos alone contributing 50.5% of the total VAT revenue. Other significant contributors are Rivers, Oyo, Kano and FCT (Abuja). These contributions reflect the intense economic activities in these States, which consequently attract large populations seeking economic opportunities. These economic hub States face unique challenges that the current horizontal allocation formula does not adequately address. Their infrastructure bears the burden of serving not just their residents, but millions of Nigerians who migrate to or do business in these States. For instance:

• Urban transportation systems are operating far beyond their designed capacity
• Healthcare facilities are serving populations far exceeding their planned coverage
• Educational institutions are stretched beyond their limits
• Housing deficits are growing due to continuous population influx
• Environmental management systems are under severe pressure

The current horizontal allocation formula, which returns only a fraction of generated VAT to these States, impairs their ability to maintain and expand critical infrastructure to meet these extraordinary demands. This creates a paradoxical situation where the States generating the most economic value for Nigeria struggle to maintain the very infrastructure that enables this value creation.

2. Reformed VAT Structure and Economic Activities
It is crucial to note that the proposed reforms have strategically excluded several items from the VAT list, which will likely result in reduced VAT generation across all States, including top contributors like Lagos and FCT. This deliberate restructuring reflects a more focused approach to value-added taxation, targeting genuinely productive economic activities rather than broad-based consumption. This alone is an initiative worth applauding because it brings relief to the populace that the Northern governors believe would be negatively impacted. This refinement of the VAT structure presents both a challenge and an opportunity. While initial VAT collections may decrease, the new system creates a more transparent link between economic productivity and revenue generation. The reforms focus on collecting VAT from truly value-adding economic activities, which should serve as a powerful incentive for all States to:

• Develop industrial and commercial capabilities.
• Attract and retain productive enterprises.
• Invest in business-enabling infrastructure.
• Create conducive environments for economic growth.
• Foster innovation and entrepreneurship.

This shift away from relying solely on equality of States, population size and land mass as primary determinants of revenue allocation reflects a more progressive approach to national development. States are now encouraged to compete based on economic productivity and innovation rather than static geographical or demographic factors, shifting the country’s productive gear from sharing equity to developmental equity. This aligns with global best practices in fiscal federalism and promotes sustainable economic development across all Regions.

3. Development Catalyst and Social Services
Rather than jeopardizing anyone’s well-being, these reforms would catalyze enhanced development across all Regions. The increased allocation to States and local governments would provide more resources for critical infrastructure, healthcare, and education – essential elements for the well-being of all Nigerians. This is not merely a Regional agenda but a national imperative to ensure that all citizens have access to quality social services, regardless of their geographic location.

The proposed reforms would enable high-contributing States to reinvest in their infrastructure, ultimately benefiting the entire nation. For instance, when Lagos can better maintain and expand its infrastructure, it enhances its capacity to generate even more VAT revenue, creating a positive cycle that benefits all States through increased national revenue. Similarly, as other States develop their economic potential under the new formula, they too can create such virtuous cycles of growth and development.

4. Recommendations
To ensure smooth implementation and address legitimate concerns, we propose the following comprehensive approach:
1. Institutional Framework:
o Establishment of a joint technical committee comprising representatives from all Regions to monitor the implementation of the tax reforms and impacts.
o Creation of Regional economic cooperation frameworks.
o Regular stakeholder consultations and feedback mechanisms.

2. Capacity Building:
o Support for States to map and develop their comparative advantages and develop short, medium and long-term development plans to enhance revenue generation.
o Technical support for tax administration improvement.
o Knowledge sharing between high-performing and developing States.

3. Transition Management:
o A phased implementation of the reforms schedule over 3-5 years.
o Establishment of a Revenue Stabilization Fund to cushion States during the transition period.
o Guaranteed minimum revenue thresholds during the transition.
o Quarterly review of impact metrics.
o Technical support and capacity building during the transition phase.
o Guidance on transitioning from demographic-based to productivity-based revenue generation.
o Protection of essential public services during transition.

4. Safeguards:
o Regular monitoring and evaluation of implementation impacts.
o Adjustment mechanisms based on performance metrics.

DAWN Commission calls on the National Assembly to approach this critical reform through constructive dialogue among all stakeholders. We believe these reforms, properly implemented, will strengthen Nigeria’s fiscal framework while ensuring no Region is left behind. The proposed transitional framework provides adequate time for all States to develop their economic bases, enhance their tax collection systems, and adapt to the new revenue-sharing formula while maintaining essential public services. It is not a zero-sum game for the high VAT-generating States, neither is it a north versus south agenda. It is a win-win policy to unlock Nigeria’s true economic potential. We call on all stakeholders to approach these reforms with an open mind, focusing on their long-term benefits for national development. Our shared goal remains the prosperity and well-being of all Nigerians, regardless of Region or State of residence.

Signed
Dr. Seye Oyeleye FIAP, FIIHP
Director General
DAWN Commission