One lesson from this tax reform brouhaha is that the presidency is not as mighty as people think. For the administrators of this administration to blame northerners, governors included, for not agreeing with the bill tells Nigerians that they can only get things done by convincing; not using force on the power brokers. But it depends on how you see Nigeria, whether from a united, regional, ethno-religious or cabalistic angle. As I said, the administrators of this administration are not interested in learning lessons and do not intend to change.

That said, the new governors’ proposal, announced by the Nigerian Governors Forum (NGF), seemed to be accepted by the presidency, according to the social media posts written by the president’s aides. However, they were silent on specific points presented by the governors.

Let’s assess the proposal in no particular order. First, like every well-meaning Nigerian, the governors declared support for tax reform. This goes without saying, and all stakeholders will agree. However, like all well-intentioned citizens, they also have certain reservations about the bill, which they presented a proposal to amend.

Second, they announced that they do not accept an increase in the VAT rate. Of course, this puts a spanner in the fiscal works. Recall that Nigeria has agreed to two loans (RESET and AMOR) worth $2.25 billion with the World Bank under the condition that they raise VAT rates to 12.5 per cent by January 2026. The NGF rejection is a welcome idea for the average thriving Nigerian because it will only increase the existing hardship.

Third, the NGF rejected reducing the corporate income tax (CIT), creating another manifesto dilemma and fiscal puzzle. One of Tinubu’s biggest selling points is expanding the tax net. Evidence and theory have shown that raising CIT encourages companies to avoid paying high taxes. In short, keeping CIT tax rates high will not expand the tax bracket. Tax avoidance will increase. Given the state of the economy, where growth is sought, lowering taxes should be the policy, not raising them. Evidence from the US under Reagan’s administration has shown that reducing taxes is an incentive not to avoid and evade taxes. It can expand the tax bracket so large as to increase tax revenues.

Fourth, they recommend that no terminal clause be used for TETFund, NITDA and NASENI. This is good. TETFund is funded by a two-per cent education tax on company profits collected by FIRS. NITDA is funded by a one-per cent IT Tax on large companies with over ₦100 million annual turnover. These two would have been affected by this tax reform. Unlike the previous two, NASENI receives one per cent of the Federation Account revenue. It requires changes in the revenue-sharing formula or removing statutory deductions from FAAC for its funding to be cut anyway.

Fifth and last, the NGF proposed a new VAT-sharing formula. They maintained the shares across the tiers of government, which is 15 per cent for federal, 50 per cent for state and 35 per cent for local governments. However, they proposed a new sharing formula within the state allocation. Each state will receive an equal share of 50 per cent. This is unchanged from the current position. They proposed a 30-per cent allocation for derivation, which is higher than the current position by half. Conversely, the population was reduced to 20 per cent. This is a reduction by a third from the current position of 30 per cent.

I hoped the governors would educate the administrators that tax reforms should only affect tax collection; not revenue allocation. Nigeria still has a functional Revenue Mobilisation, Allocation, and Fiscal Commission (RMAFC), one of the executive bodies listed in Section 153(1) of the constitution. RMAFC is mandated to design the revenue allocation formula to determine how the Federation Account Allocation Committee (FAAC) distributes the funds. It also monitors FAAC’s revenue disbursement to ensure compliance with constitutional guidelines.

Another point to note is that the NGF proposal also does not address the issue of fairness for the VAT taxpayer. Estimates were made based on the assumption that each Nigerian paid N1 VAT to a Lagos-based company like MTN, Dangote, or Glo.

For example, if Kano, with 16,253,549 million people, paid N16,253,549 million in VAT to a Lagos-based company, they would receive just about N3,258,157.09. But under the current sharing formula, they would have had N4,088,154.86, which is 15 per cent worse off. Similarly, with around 8.3 million people, Kaduna will receive under N2.4 million under the new proposal, which will be 20 per cent worse off. However, if Lagos paid N15,772,884 of VAT, assuming all its 15,772,884 people paid, it would receive N37,729,355.46. This is a 40 per cent increase from the current formula, where it would have only received N23,013,526.20. This means states will not receive half of what they paid for, except for the state that hosts the company.  This is against the fairness and equity that is hard-coded in our constitution.

It is unfair because derivation favours producing states. Clearly, the sharing formula was designed without considering the VAT taxpayer. Maintaining the equality share favours the states with lower populations, even if they pay little VAT. States with larger populations from the South will side with the smaller states as their derivation share will offset the equality gap because of the industries dominated in the region. Even Oyedele’s proposal of 60-20-20 considered reducing the equality share to 20 per cent.

This further fuels Nigerians’ suspicion of how Oyedele, Adedeji, and others quickly endorsed the NGF’s proposal despite countless hours of convincing the public to accept a 60 per cent derivation share—an idea many now see as snake oil.

Governors must let the proper body design a sharing formula to avoid short-changing taxpayers. We have tried higher derivation and equality and failed; it is time to test a higher population share. But if they cannot design a better formula, they must maintain the current one.