The 36 state governors of Nigeria, operating under the Nigeria Governors’ Forum (NGF), have reaffirmed their support for the legislative process aimed at passing the Tax Reform Bills currently under consideration at the National Assembly. This development was part of a communiqué issued following subnational consultations and a high-level engagement with the Presidential Tax Reform Committee in Abuja.

Proposed VAT Sharing Formula

In a significant policy stance, the governors endorsed a revised Value Added Tax (VAT) sharing formula that prioritizes equitable distribution of resources. The proposal allocates 50% based on equality, 30% based on derivation, and 20% based on population. This adjustment reflects efforts to ensure fairness in resource distribution among states while recognizing contributions to VAT generation.

The NGF Chairman, Governor AbdulRahman AbdulRazaq of Kwara State, underscored the importance of maintaining economic stability by opposing any immediate increase in the VAT rate or a reduction in Corporate Income Tax (CIT). The communiqué also highlighted the exemption of essential goods and agricultural products from VAT to protect citizens’ welfare and encourage agricultural productivity.

Tensions Over TETFund and Proposed Changes

One contentious aspect of the tax reform involves the future of the Tertiary Education Trust Fund (TETFund). Members of the Academic Staff Union of Universities (ASUU) have voiced strong objections to clauses within the proposed Tax Reform Bill that could divert significant portions of education tax revenues away from TETFund.

Professor Namu Timothy, Zonal Chairman of ASUU in Bauchi, warned that replacing TETFund with the Nigeria Education Loan Fund (NELFund) would undermine the progress made in improving Nigerian universities’ infrastructure, research, and capacity-building since TETFund’s establishment in 1993.

“Giving zero allocation of the Development Levy to TETFund by 2030 equates to a death sentence for the agency,” he stated. This shift, he argued, could have dire implications for the sustainability of tertiary education in Nigeria.

Impacts of the Tax Reform Bills

Dr. Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, emphasized the broad economic implications of the proposed bills. Speaking at the Lagos Chamber of Commerce and Industry’s 2025 Economic Review and Outlook Conference, Oyedele highlighted reforms aimed at budget processing, fiscal strategies, and rebasing Nigeria’s Gross Domestic Product (GDP) to reflect current economic realities.

Rebasing the GDP using 2019 as the benchmark year is expected to improve Nigeria’s tax-to-GDP ratio and attract increased foreign investment. Oyedele noted that these reforms, coupled with the modernization of the Consumer Price Index (CPI), would provide clearer insights into inflation trends and economic growth.

“There are significant provisions in the tax reform bills that hold potential for business reforms, tax reductions, and support for small businesses, enabling them to thrive without excess burdens,” he added.

Broader Economic Impacts and Stakeholder Opinions

The rebasing of Nigeria’s economy could have profound implications, as it signals to global investors the country’s readiness for economic transformation. Dr. Tope Fasua, Special Adviser to the President on Economic Affairs, explained that a revised GDP would reshape perceptions of Nigeria’s economic structure and fiscal health, potentially boosting investor confidence.

However, challenges such as inflation, exchange rate volatility, and the high cost of electricity continue to hinder the manufacturing sector’s recovery. According to Chief Francis Meshioye, President of the Manufacturers Association of Nigeria (MAN), resolving these issues will require sustained economic reforms and collective action.

Call for Optimism and Collaborative Action

Dr. Fasua urged Nigerians to adopt a more optimistic view of the country’s economic prospects, pointing out that negative narratives have cost African economies billions annually. He proposed that Nigeria work to enhance its global image through campaigns promoting the country’s potential as a leading investment destination in Africa.

Meanwhile, the manufacturing sector remains a key focus of economic reform. Chief Meshioye emphasized the need for private-sector engagement to overcome structural challenges and drive sustainable growth.

Conclusion

The NGF’s endorsement of the Tax Reform Bills and the revised VAT sharing formula represents a critical step toward achieving fiscal equity and stability in Nigeria. However, the proposed changes to TETFund funding and the broader implications of the tax reform agenda have sparked intense debate among stakeholders.

As Nigeria navigates these reforms, a collaborative approach involving government, private sector, and civil society will be essential to balancing economic growth with the needs of its citizens. The coming months will reveal how these reforms reshape Nigeria’s fiscal landscape and its position on the global stage.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

20^th January, 2024