Engr. Bashir I. Bashir, Kano
The tax reform bill introduced by President Bola Ahmed Tinubu, including its controversial Section 77, aims to restructure Nigeria’s tax system to drive efficiency and transparency. However, its implementation raises significant concerns about the economic implications for Northern Nigeria while amplifying advantages for states like Lagos. Below is a detailed breakdown of its impacts, supported by figures and insights.
Key Provisions and Their Implications
1. Section 77: VAT Redistribution Formula
• Proposed Change: Transition to a consumption-based VAT distribution model emphasizing derivation (the location of consumption) over equality or population.
• Impact on Lagos:
Lagos currently generates over 50% of Nigeria’s VAT due to its status as an economic hub, housing multinational companies, high retail activities, and luxury consumption. For example:
• In 2022, Lagos accounted for over ₦535 billion of VAT, compared to Kano’s ₦40 billion, despite Kano’s larger population  .
• Under the new formula, Lagos stands to retain a larger share of the VAT, funneling more resources to infrastructure and business incentives.
• Impact on Northern States:
Northern states, relying heavily on equitable VAT redistribution, risk losing up to 30–40% of current allocations. This will severely affect states like Sokoto, Gombe, and Zamfara, which have limited economic activities and depend heavily on federal allocations.
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2. Centralized Tax Administration
• Current Model: States collect various taxes (e.g., environmental taxes, agricultural levies), allowing for localized revenue generation.
• Proposed Reform: Centralizes tax collection under federal agencies like the Federal Inland Revenue Service (FIRS).
• Impact:
• States with diverse local taxes, such as Kano and Kaduna, could lose fiscal autonomy and revenues amounting to billions annually.
• The North’s agrarian economy could be disproportionately affected, as agricultural value chains are underdeveloped compared to the commercial services prevalent in Lagos.
3. Sectoral Impacts
• The North’s economic reliance on agriculture and informal trade contrasts sharply with Lagos’s diversified economy (finance, logistics, manufacturing). For instance:
• Kano’s informal trade generates significant economic activity but contributes minimally to VAT, making the derivation formula inherently biased.
• Lagos’s corporate taxes, tied to formalized sectors, would amplify its gains under the proposed framework.
Detailed Figures and Analysis
National Bureau of Statistics (NBS) Data Insights
• VAT Contribution Breakdown (2022):
• Lagos: 55% of total collections.
• Northern States Combined: Less than 25%, with the majority contributed by Kano and Kaduna .
• Revenue Loss Estimate for Northern Nigeria:
• VAT redistribution could shrink allocations to Northern states by ₦150–₦200 billion annually, particularly affecting education, healthcare, and infrastructure projects.
Economic Growth Disparities
• GDP Growth:
• Lagos State’s GDP: ₦33.7 trillion (2022)—more than the combined GDP of the 19 Northern states.
• Kano’s GDP: ₦2.3 trillion, largely reliant on trade and informal markets .
• Population Density vs. Economic Activity:
• Northern Nigeria hosts over 60% of the national population yet accounts for less than 30% of economic activity, highlighting structural inequalities exacerbated by the proposed reforms.
Read Also:
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Case Studies
Lagos’s Benefits
• Infrastructure: Additional VAT revenues could finance new projects like the ongoing Lekki Deep Sea Port and other mega-infrastructure developments.
• Business Ecosystem: Favorable tax policies will likely attract more corporate headquarters, reinforcing Lagos’s dominance.
Northern Nigeria’s Challenges
• Agriculture Sector: Reduced funding for irrigation projects in Kano and Sokoto could jeopardize food security and rural livelihoods.
• Social Programs: States like Borno and Yobe, grappling with insurgency recovery, may lack sufficient funds for reconstruction without equitable federal allocations.
Call to Action
Recommendations for Northern Stakeholders
1. Legislative Advocacy:
• Northern legislators must push for revisions to the VAT formula, ensuring population and equity remain core components.
• Engage in bipartisan coalitions to demand fiscal federalism that balances derivation with national development goals.
2. Governors’ Forum:
• State governors should unify to lobby for compensation mechanisms that offset potential revenue losses.
• Explore Public-Private Partnerships (PPPs) to reduce reliance on federal allocations.
3. Economic Diversification:
• Invest in agro-processing zones and renewable energy initiatives to boost regional GDP.
• Leverage the North’s population advantage for labor-intensive industries like textile manufacturing.
Public Awareness
• Mobilize grassroots support through education campaigns highlighting the economic risks posed by the reforms.
• Engage traditional and religious leaders to amplify advocacy efforts.
Conclusion
Section 77 of the tax reform bill represents a structural shift that could deepen economic inequalities between Northern and Southern Nigeria. While Lagos consolidates its financial dominance, Northern Nigeria risks losing vital resources critical for its development. A united and strategic response is essential to safeguard regional interests and promote equitable national growth.
Engr. Bashir I. Bashir
30th November, 2024
Kano, Nigeria