Analysts give positive verdict on proposed VAT reform, call for balancing
At the backdrop of the controversies generated by the recent resolution of the Northern Governors to reject the proposed policy change on the distribution of revenue from Value Added Tax, VAT, some public policy analysts have expressed the need for the government to balance the policy in favour of inclusive growth while incentivizing revenue generation performance at the states level.
They, however, condemned the position of the Northern Governors on grounds including narrow sentiment.
The proposed change in VAT revenue distribution contained in a new Tax Bill now before the National Assembly, essentially seeks to allocate the revenue based on where it is generated.
Commenting on the controversies, Clifford Egbomeade, Public Policy Analyst and Communications expert called for a delicate balancing between national development and inclusive growth.
He stated: “From a national development perspective, a derivation-based VAT model would incentivize states to foster business environments and increase their revenue capacities. This approach aligns with the principles of fiscal federalism, which is a more autonomous model where regions generate and manage revenues based on their economic activities.
Advocates argue that this would stimulate regional competition and growth, as states are motivated to attract investment and consumption to increase their revenue base.
Moreover, it could foster a sense of accountability and transparency, as states would need to build and sustain business-friendly policies, infrastructure, and incentives to maximize their local tax collections.”
Continuing he said: “However, the economic implications for northern states could be challenging. Many states in the North are heavily reliant on federal allocations and have lower levels of industrial and commercial activities.
A shift to derivation-based VAT distribution might strain their finances, potentially deepening inequalities between more economically developed states (primarily in the South) and less developed ones in the North.
‘‘This could have wider social implications, as economically disadvantaged regions might struggle to fund essential public services and infrastructure, widening the socio-economic gap across the country.
“ Furthermore, the Northern Governors’ stance points to regional concerns about resource distribution fairness and a historical reliance on centralized allocations.
This dependency reflects broader issues related to resource-based inequalities, with some regions lacking diversified economic bases.
‘‘However, the derivation-based model could encourage these states to explore new ways to expand their tax base through policies that attract investment and promote local industries.
“In summary, while a derivation-based VAT distribution model could be beneficial for creating a more self-sustaining, regionally-driven economy, the potential negative effects on northern states underline the need for careful transition strategies.
This could include interim federal support, development programs, and investment incentives to help disadvantaged regions adapt and thrive in a more fiscally federalist structure. ‘‘Balancing these reforms with the economic capacities of each region is essential to ensure that national development goals are inclusive and equitable across all states.”
Northern states should create more VAT-generating enterprises — Adonri
Commenting also, David Adonri, Analyst /Executive Vice Chairman at Highcap Securities Limited, said: “The Northern Governors are hypocritical on the change. They generate nothing and insist on taking a lion share of VAT.
If they genuinely want to increase their VAT allocation, let them create more VAT generating enterprises in the North. Northerners have been sucking the blood of Southern Nigeria for ages and that must end. They mine their solid minerals and keep the income whereas, the liquid minerals in the south are mined and the income is shared to them”.
Centralization negates VAT principles — Prof Iledare
In the views of Prof. Wumi Iledare, a Professor Emeritus in Petroleum Economics and Policy Research, the position of the Northern Governors aligns with the centralisation of governance in Nigeria which negates the principles of VAT.
But, according to him, VAT should be based on where value is added.
He stated: ‘‘I said somewhere recently that centralisation of nearly every aspect of the economy of Nigeria leaves so much to be desired. Energy is centralised, education, policing, taxation, and even roads. Hence sustainable development is delimited.
‘‘The federal government has become so powerful and in the process makes political expediency to conflict with optimal macroeconomic policy. Some will argue that the Constitution of Nigeria is anchored majorly on rent-seeking and rent-sharing.
‘‘In a rational economic setting, VAT by definition is collected where value is added majorly. There is so much inequity in Nigeria, nearly everywhere you look. The ingredients driving those inequity are prebendalism, transactionalism, and economic populism agenda just for political expediency’’.
