Lagos’s dominance in VAT generation stems from factors like superior infrastructure, multiple ports, and its position as Nigeria’s economic hub. However, underutilized ports in states like Delta could benefit from partnerships with nations like Singapore, which specialize in blue economy development. Similarly, addressing insecurity in Northern states would encourage farming and entrepreneurship, unlocking their vast economic potential.
Ultimately, the tax reform bills offer an opportunity to accelerate national development by incentivizing states to harness their unique resources. Rather than viewing the reforms through a divisive lens, lawmakers and stakeholders should adopt a more pragmatic perspective, focusing on shared prosperity and regional economic growth. By leveraging these reforms to attract investment and boost local production, Nigeria can create a more balanced and inclusive economy.
How can we forget the horrifying act of terrorists who ruthlessly killed eleven farmers in Sokoto State for daring to work on their farms? Or the disturbing incident in Bauchi, where a tomato factory partnership between Nigerian and Spanish entrepreneurs faced terrorist threats, with expatriates narrowly escaping with their lives? What happened to the once-thriving cotton and textile mills in Kaduna, established to process cotton from the Funtua region and groundnut oil from the North?
In the past, there was healthy competition between Nigeria’s regions—North, West, and East—each region aggressively cultivating and processing cash crops like cotton and groundnuts in the North, cocoa in the West, and oil palm and coal in the East. This was possible because states could retain 50% of their earnings. However, when the system transitioned to a federal structure in 1978, local production slowed drastically as states became overly dependent on the Federal Government’s allocation, neglecting their internal revenue generation efforts.
This trend worsened as insecurity ravaged Northern Nigeria, further hindering industrial activities. In addition, government policies, such as import substitution, made local textile and oil production uncompetitive, allowing foreign products to flood the market and stifle local industries. Consequently, the poor business environment contributed to the North generating only 25% of the nation’s VAT, a disproportionately small share given that the region has 19 states compared to 15 in the South, where the majority of VAT is generated. Lagos, in particular, contributes the lion’s share.
Despite these challenges, the North need not despair. The current situation should serve as a wake-up call for Northern governments and entrepreneurs to revive the industries that once flourished. This is especially important, as the Supreme Court is likely to rule in favor of Lagos and Rivers states, which are in court seeking to retain 100% of the VAT generated within their borders.
Rather than adopting a defeatist, combative approach, Northern leaders should embrace the impending changes and think entrepreneurially. After all, Kano was once the heart of the prosperous trans-Saharan trade. The North should abandon its divisive mindset and instead focus on collective progress. Northern leaders should intensify efforts to address insecurity, which has stifled the establishment of industries, and engage citizens in a dialogue about the importance of industry for economic growth.
Religious and traditional leaders in the North have a critical role to play in educating the public. They must help their communities understand that local industries will create jobs and generate the tax revenues (CIT, PIT, and VAT) needed to combat poverty, disease, and illiteracy. This is particularly important given the alarming number of out-of-school children, especially in the North, as reported by UNICEF.
Unfortunately, both the Federal Government and Northern leaders have fallen short in raising public awareness about key policies and programs. Effective communication is essential for the success of government initiatives. Just as politicians aggressively campaign to secure votes, they should also passionately advocate government programs post-election to ensure effective governance.
Take, for instance, the National Education Loan Fund (NELFUND), a program designed to provide financial support to Nigerian youths pursuing education. The current television campaign about NELFUND, launched by the National Orientation Agency (NOA), comes too late. The target audience—youth—should have been informed about the initiative well in advance of its launch, not after the fact. This late-stage campaign is a reminder of the crucial need for timely communication in driving national programs and ensuring their success.
Even so, the message is being communicated through a cartoon character designed for children between the ages of one and ten, which is an odd choice, given that the target audience for the initiative—young adults seeking to enter the university—are typically 16 and older. Even more concerning is the fact that the jingle is airing on regular TV stations, rather than on programs and channels that truly capture the attention of young people, such as music channels like SoundCity and HipTV, or popular talent and reality shows like Big Brother Naija.
At present, there’s little to no presence of NELFUND on social media, a platform where Nigerian youths—who are active netizens— primarily interact. These platforms were pivotal in mobilizing for the #EndSARS protests in 2020 and the #EndBadGovernance movement just a few months ago.
Given the lack of proper outreach, it’s not surprising that the Executive Secretary of NELFUND, Mr. Akin Sawyer, has expressed concern over the low interest in one of the Tinubu administration’s key initiatives—providing loans to students for their education. He has been touring various higher institutions to increase awareness. With 162 higher institutions in Nigeria, a recent report from The Punch revealed that only students from 136 of these institutions applied for NELFUND, leaving over 88,000 students from the remaining schools unengaged.
The lack of participation can be attributed to insufficient awareness campaigns or perhaps the fear surrounding loans due to past negative experiences.
However, these concerns could have been alleviated with more extensive publicity, stressing that the student loan program is interest-free, so there is no danger of falling into a debt trap. It’s important to emphasize that the NELFUND initiative aims to democratize education by providing loans to disadvantaged students, enabling youths—who could have become innovators or entrepreneurs like Elon Musk, Jeff Bezos, or Sam Altman—to access education instead of being stranded as street urchins due to financial constraints.
Now, turning to the core focus of this discussion—tax reform—one of the most debated issues is the proposed new VAT distribution formula. To explore this, let’s examine VAT tax administration in three countries: the UK, the USA, and China.
In the UK, the standard VAT rate is 20%, which is more than double Nigeria’s 7.5% rate, though there are reduced rates for certain goods. For instance, food and drink for human consumption are typically zero-rated, and some items like children’s car seats and home energy are taxed at a reduced rate of 5%. Like Nigeria, some goods and services are exempt from VAT, such as postage stamps and certain health and education services.
The United States, on the other hand, does not have a federal VAT system. Instead, it operates a sales tax system, which varies from state to state. Some states have no sales tax, while others have rates ranging from 2.9% to 7.25%. A few states may have specific taxes that resemble VAT, but there is no nationwide VAT system.
In China, the standard VAT rate is 13%, with reduced rates of 9% and 6% applying to specific goods and services. Like the UK, the 9% rate applies to retail, entertainment, hotels, and restaurants, while the 6% rate applies to financial services, insurance, and technology. The VAT system in these countries aligns with Nigeria’s policy of exempting food from VAT.
In my assessment, Nigeria’s proposed VAT reforms are in line with global best practices. Therefore, the debate surrounding these reforms, particularly the North-South divide, is unfortunate and avoidable. Without a doubt, the proposed tax reforms could benefit Nigeria’s growth and development. In fact, if the reform bill passes, Lagos will likely lose some of its benefits because it will vitiate the Supreme Court’s judgement, which was expected to be in favour of the 100% VAT allocation for Lagos and Rivers states that had sued the Federal Government that currently collects VAT, which the states are against. As a result of the improvement in VAT tax derivation ratio from 20% to 60%, the scramble for investors, as it happens in the USA for instance where states jostle for firms like Tesla, Microsoft, GM, etc., to be located in their domain to boost jobs creation and tax benefits, other states may start aggressively embarking on adoption of ease of doing business policies to attract businesses into establishing their operations locally to benefit from CIT, PIT, and VAT, which Lagos currently enjoys due to its business hub status.
Furthermore, as Nigeria looks to implement tax reforms, oil-rich states like those in the Niger Delta might push for international oil companies (IOCs) to relocate their headquarters to the region to ensure that host communities benefit from the 60% VAT allocation in the reform. I have discussed this point of view with Osagie Okunbor, Chairman of Shell Petroleum Development Company (SPDC), in Nigeria who supports the idea, provided there is peace and security in the region.
Invariably, just as the North must tackle insecurity to unlock its potential as a center for commerce and industry, the same goes for the Niger Delta, which requires an end to militant activities to attract IOCs back to the region. In the East, the actions of the proscribed Indigenous People of Biafra (IPOB), which have stifled entrepreneurial activities, further hindering progress, have to end if they must enjoy the benefits of the proposed formula for sharing VAT.
In light of the above, if the tax reform bills are passed, they could have a multiplier effect on Nigeria’s development, particularly by addressing the insecurity that hampers businesses across the country simply because all state governors will have reasons to embark on more innovative and dynamic ways of returning peace to their domain so that businesses can thrive to generate income internally. In effect, these proposed tax reforms offer far more benefits than they might initially appear, including tackling insecurity, which remains one of the most significant barriers to Nigeria’s socio-economic progress.
Therefore, instead of framing the tax reform as a North-South conflict, we should view it as a strategic opportunity to lift Nigeria out of its socio-economic stagnation. As such, I urge our lawmakers to look beyond temporary political concerns and pass the bill after addressing the outstanding issues through continued dialogue.