Stakeholders criticise tax reform bill’s derivation-based VAT model, warn of economic risks

Economic stakeholders have voiced concerns over the recently proposed Tax Reform Bill presented by President Bola Ahmed Tinubu, warning that if passed, the bill could disproportionately impact certain states and complicate tax administration.

The bill, which introduces a derivation-based Value Added Tax (VAT) model, has been met with calls for a more equitable approach to ensure fair distribution across regions.

The Kaduna State Chamber of Commerce, Industry, Mines, and Agriculture (KADCCIMA) expressed apprehension over the proposed VAT allocation model, which earmarks 60 per cent of VAT revenue to the state where it’s collected.

KADCCIMA President Ishaya Idi argued that this approach could disadvantage regions without major corporate headquarters, as VAT remittances often reflect the company’s head office rather than the actual location of goods and services consumption. He warned this could create significant fiscal disparities between states.

The Chairman of the Presidential Tax Reform Committee, Taiwo Oyedele, defended the bill, stating that the intent is to simplify Nigeria’s tax system and resolve existing inefficiencies.

However, he acknowledged concerns over regional revenue imbalances, suggesting a fairer VAT model that considers where products and services are consumed rather than collected.

To mitigate the potential impact on less-industrialised states, Oyedele proposed an equalisation fund, supported by a federal allocation, to balance disparities.

CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, called for a cautious review, highlighting the bill’s mix of beneficial and contentious elements.

He praised efforts to streamline tax processes but warned against imposing additional tax burdens amid economic pressures. Yusuf urged thorough stakeholder engagement to refine the bill and eliminate contentious clauses.

As debates intensify, the Tax Reform Bill’s proposed VAT derivation model remains a polarising issue, with industry leaders urging government revisions to achieve a balanced, equitable solution for all states.