The current administration of President Bola Ahmed Tinubu is on a mission to revamp Nigeria's fiscal and tax landscape.

The journey began in August 2023 when the committee on fiscal policy and tax reforms, headed by Taiwo Oyedele, was inaugurated.

During the inauguration, the committee was charged with harmonizing the tax system and tackling issues related to multiple taxation, improving Nigeria's revenue profile, transforming tax administration,  achieving a tax-to-GDP ratio of 18% within the next 12 months and correcting structural imbalances in the tax system that disproportionately burden the poor.

Having spent more than a year working on a framework for effective tax reforms, President Bola Tinubu in October, this year, submitted to the national assembly the committee’s recommendations, which were harmonized into four executive bills.
The bills include the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill and the Joint Revenue Board Establishment Bill.

Among the key recommendations of the committee, none has generated as much controversy as the one on the derivation-based model of VAT distribution.

The controversy began when the Northern Governors Forum expressed concerns over the proposed changes, saying it's against the interest of the north and other sub-nationals.

The derivation-based model intends to redistribute VAT revenues  based on consumption.  This means that states would receive VAT revenues according to how much goods and services are consumed within their borders, rather than simply sharing the revenue equally or based on population.

Currently, the percentage of VAT accruable to states where revenue is collected is 20%, with 30% percent distributed according to states' population and the remainder shared equally among all states.

However, with the proposed sharing formula, states with higher consumption rates would receive a larger share which is 60% of VAT revenues. 

Debates have been rife with the implications of this model. While opponents argue that it could disadvantage states with lower consumption, supporters claim it would encourage local economic activities. The president has rebuffed the National Economic Council's call to withdraw the bill, insisting it should be allowed to undergo the legislative process.

As Nigerians await the final legislative verdict, here we join in weighing all the angles to this issue.