Nigerian governors have approved a revised Value Added Tax formula, which allocates 50% based on equality, 30% on derivation, and 20% on population, marking a significant breakthrough in negotiations.
After weeks of controversy, governors from the 36 states and the Presidential Tax Reform Committee reached an agreement on Thursday regarding the modalities for sharing the VAT.
At the conclusion of their meeting, the governors endorsed a new VAT sharing formula: 50% based on equality, maintaining the current rate; 30% based on derivation, up from the current 20%; and 60% as originally proposed by the Presidential Tax Reform Committee led by Mr. Taiwo Oyedele.
The governors also agreed to allocate 20% of VAT proceeds based on population, down from the current 30% before the tax reform proposal.
The tax reform deal coincided with the Senate’s projection of a N100 trillion aggregate expenditure for the 2026 fiscal year, and its pledge to release funds held by certain government organizations.
Chairman, Senate Committee on Appropriation, Senator Solomon Adeola, made the disclosure during a Stakeholders Public Hearing and Interactive Session on the 2025 Appropriation Bill. The session was themed, “The 2025 Budget of Restoration: Securing Peace, Rebuilding Prosperity.”
Chairman of the Senate Committee on Local Content, Senator Natasha Akpoti-Uduaghan, noted that some stakeholders in the northern region were apprehensive about the tax reform bills, citing the region’s lack of preparation for such fiscal legislation.
The communiqué from the closed-door meeting between the governors and members of the Presidential Tax Reform Committee in Abuja was signed by the Chairman of the Nigeria Governors’ Forum, and Governor of Kwara State, Alhaji Abdul Rahman Abdul Razaq.
The communique stated, “The Forum endorsed a revised Value Added Tax (VAT) sharing formula to ensure equitable distribution of resources: 50 per cent based on equality, 30 per cent based on derivation, and 20 per cent based on population.
“The Forum reiterated its strong support for the comprehensive reform of Nigeria’s archaic tax laws. Members acknowledged the importance of modernising the tax system to enhance fiscal stability and align with global best practices.
“We, members of the Nigeria Governors’ Forum (NGF) and presidential tax reform committee, convened on the 16th of January 2025 to deliberate on critical national issues, including the reform of Nigeria’s fiscal policies and tax system, arrived at more resolutions.
“Members agreed that there should be no increase in the VAT rate or reduction in Corporate Income Tax (CIT) at this time, to maintain economic stability.
“The Forum advocated for the continued exemption of essential goods and agricultural produce from VAT to safeguard the welfare of citizens and promote agricultural productivity.
“The meeting recommended that there should be no terminal clause for TETFUND, NASENI, and NITDA in the sharing of development levies in the bills
“The meeting supports the continuation of the legislative process at the National Assembly that will culminate in the eventual passage of the Tax Reform Bills.
Thursday’s meeting between the governors and members of the presidential committee represented a major breakthrough, following the rejection of the proposed tax amendment bills by northern states’ governors, emirs, and chiefs last year.
