FIJ
If the Presidency’s Tax Reform Bill becomes law, 14 states in Nigeria are set to lose revenue while 22 states are likely to benefit.
This is the conclusion of a simulation by Agora Policy, a Nigerian think tank and policy group, published on January 10.
Agora based its analysis on October value-added tax (VAT) figures, used the FAAC population index to estimate state shares, and relied on the National Bureau of Statistics (NBS)’s 2019 consumption report to estimate consumption across states.
It also used average figures from other North-East states to estimate Borno State’s share, as it was not included in the NBS report.
According to this simulation, the total VAT revenue for states would rise from N311.16 billion to N342.27 billion but the redistribution would lead to some states losing out.
Under the current formula, VAT revenue is shared with 20% allocated based on where it was generated (derivation), 30% based on population and 50% equally across all states.
The proposed changes would see 60% of the revenue distributed based on derivation, with the remaining 20% each for population and equality.
This, based on VAT figures from October, would leave Lagos as the biggest loser, with a drop of N7.44 billion, while Delta would see the biggest gain at N6.93 billion.
The 14 states expected to lose revenue include Sokoto, Zamfara, Jigawa, Yobe, Borno, Gombe, Adamawa, Taraba, Ebonyi, Rivers, Lagos and Nasarawa.
This redistribution would disproportionately affect northern states. In real terms, the impact would be felt as follows: five states in the North-East, two in the North-Central, three in the North-West, one in the South-East, two in the South-South and one in the South-West.
The proposed changes would also result in percentage shifts, with Delta’s revenue rising by 86.17%, while Taraba would face a 26.45% decline. Even smaller economies like Zamfara would lose around 5.08%.
NGF PROPOSED ADJUSTMENT
In contrast, the Nigerian Governors’ Forum (NGF) has suggested an alternative formula, which also keeps the state share of VAT at 55%. But their proposed formula allocates 50% equally among all states, 30% based on derivation and 20% based on population.
Under this proposal, Lagos would still lose revenue, but the impact would be less severe. Lagos would lose N22.44 billion (51.66%), and Rivers would lose N6.49 billion (35.54%), while Delta would gain N4.63 billion.
The NGF’s approach ensures that only Lagos and Rivers would face losses, while the other states would benefit.
The gains for individual states would range from N397.57 million for Sokoto to N4.63 billion for Delta. Likely losses would range from N6.49 billion for Rivers to N22.44 billion for Lagos.
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