A group known as the League of Northern Democrats has raised concerns about the proposed derivation formula in the current tax reform discussions, cautioning that it could worsen regional disparities if not clearly defined.
The league praised the Nigeria Governors’ Forum for supporting a revised Value Added Tax distribution formula of 50% based on equality, 30% on derivation, and 20% on population.
However, they expressed reservations regarding the interpretation of “derivation” and its impact on fiscal fairness.
In a statement by their spokesperson, Ladan Salihu, the group emphasized the importance of explicitly defining derivation as the place of consumption rather than the point of collection for tax reforms to be just, fair, and lasting.
They argued that without this clarity, the proposed increase in derivation to 30% could perpetuate regional inequalities, benefiting specific areas disproportionately at the expense of others, especially in the north.
The League of Northern Democrats warned that overlooking the derivation issue could undermine the goals of the tax reforms and called for prompt revisions before fully supporting the process.
They stressed the need for derivation to be tied to the area of consumption, stating that this approach would ensure resources are distributed based on actual economic activity and contributions.
According to the group, linking derivation to consumption aligns with modern taxation practices, encourages accountability, and motivates regions to enhance their economic capabilities.
Until this pivotal matter is resolved, the League of Northern Democrats will withhold complete endorsement of the tax reform agenda, urging the Nigeria Governors’ Forum and the Presidential Tax Reform Committee to integrate this crucial clarification and other proposed amendments, including the inheritance tax clause, to ensure that the reforms lead to fair and advantageous outcomes for all Nigerians.