The Grave Dangers in Tinubu’s Tax Reform: A Northerner’s Perspective
By Bashir I. Bashir
The tax reform bill introduced by President Bola Ahmed Tinubu includes the controversial Section 77, which seeks to overhaul Nigeria’s tax system for improved efficiency and transparency. However, the potential implications of this reform raise substantial concerns regarding its economic impact on Northern Nigeria, which may find itself at a disadvantage compared to states like Lagos. Below is an analysis of the major provisions of the reform and their potential consequences, bolstered by statistics and insights.
Key Provisions and Their Implications
1. Section 77: VAT Redistribution Formula
– Proposed Change: The bill suggests a shift to a consumption-based VAT distribution model that prioritizes derivation—meaning the location of consumption—over equality or population.
– Impact on Lagos:
– Currently, Lagos generates over 50% of Nigeria’s VAT, benefiting from its status as an economic powerhouse filled with multinational firms and vibrant retail activities. In 2022, Lagos contributed over ₦535 billion in VAT, while Kano generated only ₦40 billion, despite its larger population.
– The revised formula would allow Lagos to retain a greater share of VAT, enhancing its capacity to invest in infrastructure and create business incentives.
– Impact on Northern States:
– Conversely, Northern states—many of which rely on a fair distribution of VAT—could see a reduction in allocations by 30-40%. States like Sokoto, Gombe, and Zamfara, with limited economic activities, are particularly vulnerable to these cuts and may face severe fiscal shortfalls.
2. Centralized Tax Administration
– Current Model: States currently collect various taxes, such as environmental levies and agricultural taxes, which allows them to generate local revenues.
– Proposed Reform: The reform seeks to centralize tax collection under federal agencies, such as the Federal Inland Revenue Service (FIRS).
– Impact:
– States like Kano and Kaduna, which benefit from diverse local taxes, may lose both fiscal autonomy and substantial revenue—amounting to billions annually.
– The agrarian economy of Northern Nigeria could suffer disproportionately, given its underdeveloped agricultural value chains compared to the more established commercial services in Lagos.
3. Sectoral Impacts
– The economic makeup of Northern Nigeria, heavily reliant on agriculture and informal trade, contrasts sharply with Lagos’s diversified economy encompassing finance, logistics, and manufacturing.
– For example, Kano’s informal trade contributes significantly to local economic activity but falls short in VAT contributions, rendering the proposed derivation formula inherently inequitable. Conversely, businesses in Lagos, which pay substantial corporate taxes, are poised to benefit under the new framework.
Detailed Figures and Analysis
National Bureau of Statistics (NBS) Data Insights
– VAT Contribution Breakdown (2022):
– Lagos accounted for 55% of total VAT collections.
– Collectively, Northern States contributed less than 25%, dominated by Kano and Kaduna.
– Revenue Loss Estimates for Northern Nigeria:
– The new VAT redistribution model could reduce allocations to Northern states by between ₦150 billion and ₦200 billion annually, jeopardizing funding for crucial sectors like education, healthcare, and infrastructure.
Economic Growth Disparities
– GDP Growth:
– Lagos State’s GDP reached ₦33.7 trillion in 2022—outpacing the combined GDP of all 19 Northern states.
– Kano’s GDP stands at ₦2.3 trillion, largely dependent on informal trade.
– Population Density vs. Economic Activity:
– Although Northern Nigeria houses over 60% of the national population, it generates less than 30% of economic output, showcasing structural inequalities likely exacerbated by the proposed reforms.
Case Studies
Lagos’s Benefits
– Infrastructure Development: Increased VAT revenues could finance significant projects such as the ongoing Lekki Deep Sea Port and various other infrastructural ventures.
– Business Ecosystem: Favorable tax policies may attract more corporate headquarters, solidifying Lagos’s status as Nigeria’s commercial nerve center.
Northern Nigeria’s Challenges
– Agriculture Sector: Reduced funding for critical irrigation projects in areas like Kano and Sokoto poses risks to food security and the livelihoods of rural communities.
– Social Programs: States such as Borno and Yobe, still recovering from insurgent activities, may struggle to finance reconstruction efforts without sufficient federal allocations.
Call to Action
Recommendations for Northern Stakeholders
1. Legislative Advocacy:
– Northern legislators should advocate for amendments to the VAT formula to ensure equity and population considerations are prioritized.
– Building bipartisan coalitions can enhance demands for fiscal federalism that balances derivation with national development objectives.
2. Governors’ Forum:
– State governors should unify to lobby for compensation strategies that will mitigate potential revenue losses.
– Exploring Public-Private Partnerships (PPPs) can help reduce dependency on federal funding.
3. Economic Diversification:
– Investing in agro-processing zones and renewable energy initiatives can bolster regional GDP.
– Capitalizing on the North’s population for labor-intensive industries such as textile manufacturing could drive economic development.
Public Awareness
– Raising grassroots awareness through educational campaigns can highlight the economic dangers presented by the reforms.
– Engaging traditional and religious leaders can amplify advocacy efforts.
Conclusion
Section 77 of the tax reform bill represents a significant shift that could widen the economic divide between Northern and Southern Nigeria. While Lagos consolidates its financial advantage, Northern Nigeria risks losing essential resources vital for its growth and development. A collective and strategic response is imperative to protect regional interests and promote equitable development throughout the nation.
*Engr. Bashir I. Bashir* *Kano, Nigeria*
