Northern Governors Reject Bill to Distribute VAT Based on Derivation

Northern governors have voiced strong opposition to the proposed Tax Reform Bill, advocating against its passage in the National Assembly. Their primary concern is that a derivation-based Value-Added Tax (VAT) distribution model would financially disadvantage northern states, given that many multinationals, which contribute heavily to VAT, are headquartered outside the region.

Gombe State Governor, Mohammed Inuwa Yahaya, who also chairs the Northern Governors’ Forum, issued a statement on Monday from Kaduna State Government House, expressing the North’s unified stance against the bill. Governor Yahaya articulated that the Forum fears the bill’s redistribution formula would leave northern states with diminished VAT revenue because the bill proposes that VAT be distributed based on the states where it is generated, benefiting high-revenue states and potentially reducing northern allocations.

The Forum raised concerns over VAT collection practices, highlighting that companies typically remit VAT from the location of their headquarters rather than where goods and services are actually consumed. “The contents of the bill are against the interests of the North and other sub-nationals, especially the proposed amendment to the distribution of value-added tax to a derivative-based model,” Yahaya stated.

Northern governors argue that due to restrictive Islamic laws, including the prohibition of alcohol in several northern states, VAT revenue from products such as alcoholic beverages—largely sold in southern states—should not be allocated to states where those products are banned. Critics from southern states have argued that it is unfair for northern states to benefit from taxes on products they have outlawed, especially with routine announcements of alcohol seizures worth millions of dollars in the North.

This tension over VAT revenue distribution is not new. In 2021, former Rivers State Governor, Nyesom Wike, voiced similar grievances, contending that states with restrictive social policies should not claim a share of VAT from products like alcohol, which they ban within their borders.

In a plea to the National Assembly, Governor Yahaya urged lawmakers to ensure fairness, stating, “To ensure that no geopolitical zone is short-changed or marginalized.” He expressed concern that without such consideration, the bill could exacerbate the economic imbalance between regions.

Gombe State, governed under Sharia law, reported one of the lowest internally generated revenues in the country, amounting to ₦13.6 billion in 2022, according to the National Bureau of Statistics.