Oyedele addresses Northern governors’ concerns over proposed VAT derivation model

The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele, has responded to the Northern Governors Forum’s rejection of the proposed derivation-based Value Added Tax (VAT) distribution model in Nigeria’s new finance bill.

Speaking on his official X account, Oyedele expressed understanding for the Northern governors’ concerns, describing the current VAT allocation system as inequitable and affecting states across Nigeria, not just those in the North.

Oyedele explained that under the present VAT model, revenues are distributed based on where VAT is remitted, often without considering the actual location of goods and services’ supply or consumption.

“We share the sentiment expressed by the Northern Governors regarding the inequity inherent in the current model,” Oyedele stated.

“This issue impacts states across all geopolitical zones because the derivation principle is determined largely by the place of VAT remittance rather than the location of goods or services consumption.”

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Under Oyedele’s committee’s proposal, VAT allocation would reflect where goods and services are consumed or supplied, whether they are zero-rated, exempt, or taxable.

Oyedele cited the telecommunications sector as an example, emphasizing that VAT distribution should account for the state in which subscribers are located, not just where VAT payments are processed. This model, he argued, would create a fairer revenue-sharing system across Nigeria.

The Northern Governors Forum, led by Gombe State Governor Muhammed Inuwa Yahaya, has been vocal in opposing this derivation-based model. Following a recent meeting, the forum released a communiqué rejecting the proposed VAT distribution model, arguing it would disadvantage the North.

The governors urged the National Assembly to reject any legislation that could harm the welfare of the Northern populace.

According to the current VAT Act, VAT revenue is allocated as follows: 15% to the Federal Government, 50% to the States and FCT, and 35% to Local Governments, with 20% based on derivation. Additional factors include equality and population, which weigh in at 50% and 30%, respectively.

The Northern Governors Forum’s resistance and Oyedele’s call for fairness underline the tension around VAT reform, with both parties advocating for a distribution model that more equitably serves Nigeria’s diverse regions.