In a significant turn of events, the Nigeria Governors’ Forum (NGF) has unanimously rejected the Federal Government’s proposal to increase the Value Added Tax (VAT) from its current rate of 7.5%. This development was announced in a statement released after a high-level meeting in Abuja on January 16, 2025.
The governors expressed their opposition to the VAT increase, labeling the move as untimely and potentially destabilizing to the nation’s economy, which is already grappling with high inflation rates. According to the NGF, the current economic climate does not support an increase in VAT, which would add further financial strain on citizens and businesses alike.
The forum, however, extended its support to the broader Tax Reform Bills currently under legislative consideration. These bills aim to modernize Nigeria’s tax laws, which the governors acknowledged as crucial for enhancing fiscal stability and aligning with global best practices. The NGF emphasized the importance of these reforms for ensuring equitable resource distribution and economic resilience.
A revised VAT sharing formula was proposed by the governors, suggesting a distribution of 50% based on equality among all states, 30% based on derivation, and 20% based on population. This new formula aims to promote fairness and balance in resource allocation, particularly benefiting smaller states while still incentivizing revenue generation at the subnational level.
In their official statement, the governors advocated for the continued exemption of essential goods and agricultural produce from VAT. This recommendation is designed to protect the welfare of citizens, especially the most vulnerable, and to boost agricultural productivity, which is vital for food security in Nigeria.
The forum also made clear its stance on maintaining the current Corporate Income Tax rates to preserve economic stability. They suggested that no terminal clause should be applied to development levies for agencies like TETFund, NASENI, and NITDA, ensuring these institutions continue to receive necessary funding for national development.
AbdulRahman AbdulRazaq, the Chairman of the NGF and Governor of Kwara State, stated, “The Forum reiterated its strong support for the comprehensive reform of Nigeria’s archaic tax laws. Members acknowledged the importance of modernizing the tax system to enhance fiscal stability and align with global best practices.”
This decision by the NGF comes at a time when the country is looking towards economic recovery and stability. The rejection of the VAT increase signifies a collective stance by the governors to prioritize the well-being of their constituents over immediate fiscal expansion.
The announcement has sparked discussions across various sectors, with economic analysts, business leaders, and the public expressing mixed reactions. While some applaud the move for protecting consumers, others argue that the government might need to find alternative revenue sources to fund its ambitious developmental projects.
The Tax Reform Bills are now expected to proceed with these recommendations in mind as they move through the legislative process in the National Assembly. The outcome of these reforms could shape Nigeria’s fiscal policy landscape for years to come.