Oyedele: Derivation Formula’ll Reduce Inequitable Resource Distribution

•Says tax reform bills necessary to end struggles by Nigeria’s poorest 

•Insists consultants won’t be involved in collection

•Senate suspends further action on public hearing, sets up ‘elders’ committee to douse tension

Emmanuel Addeh, Chuks Okocha, Sunday Aborisade, Kuni Tyessi in Abuja and Emma Okonji in Lagos

The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, yesterday argued that derivation formula in the tax reform will reduce inequitable distribution of resources. He stated that some states pushing back on the proposed 60 per cent Value Added Tax (VAT) derivation formula may end up with 100 per cent if the courts eventually decide so.

The Senate proceeded to set up a 10-member committee  of ‘elders’ led by Senate Minority Leader, Abba Moro  to  meet with Attorney General of the Federation’s team on areas of concerns in the bills to douse the lingering tension of the tax reform.

Speaking on Arise Television, Oyedele said that it was surprising that the same states for which the committee was fighting were the ones kicking against the passage of the tax reform bills.

The tax expert’s remarks came as the Senate yesterday directed its committee on Finance to stop further action on the landmark tax reform bills, pending when grey areas of concern raised on the proposed legislations by stakeholders are properly addressed.

But Oyedele explained that the current VAT allocation formula, based on 20 per cent derivation, 50 per cent equality of states, and 30 per cent population, was flawed.

He cited litigation initiated by Lagos and Rivers States, in which they argued that VAT collection should be under state control, since it is not explicitly mentioned in the constitution, arguing that if the case goes their way, it will mean that VAT will be based on 100 per cent derivation, further deepening the current inequity among states.

He defended the urgency of the tax reform bills, emphasising the need to address economic challenges, promote fairness, and ensure equity in revenue sharing, outlining how the reforms aim to resolve systemic issues in the VAT system and provide relief for struggling Nigerians.

He said: “Most likely, if we get the judgement from the Supreme Court, it will say states should administer it. When a state administers VAT, then it becomes 100 per cent derivation.

“It is important for us to understand that our proposal to move derivation to 60 per cent is actually a middle ground. If we lose the opportunity of getting this 60 per cent derivation, we are likely to end up with 100 per cent derivation, which, to be honest, is not bad but is going to create a lot of problems for businesses and economic growth.”

Asked why the federal government was in a rush to ensure that the bills were pushed for emergency passage, Oyedele maintained that the challenge of streamline Nigeria’s tax system was indeed an urgent matter.

“We are at a stage today where the majority of people are struggling. Small businesses face over 60 official levies and taxes, over 200 unofficial ones. If you want to provide relief for your people, you should do it in a hurry because it’s urgent; it’s an emergency,” he pointed out.

According to him,  the current system which attributes VAT revenue to states where payments are made rather than where consumption occurs,  disproportionately benefits Lagos State and to a lesser extent Rivers state.

 In 2023 alone, Oyedele said that Lagos accounted for over 80 per cent of VAT revenue, despite its economy being about 30 per cent of the national total, urging those opposed to the current bills to imagine a situation where Lagos collects all its VAT.

“To promote equity and stimulate economic activities across the country, the reform proposes attributing VAT to where consumption takes place and increasing the share of VAT revenue states retain,” he stressed.

Oyedele, who also responded to insinuations that adequate consultation was not carried out by the committee, said that there were at least four meetings with  finance commissioners as well as revenue service chairpersons, and with governors, to a lesser extent.

“We also had engagement with the governors themselves, but you would imagine that if you manage to get the airtime to speak to governors, either through the governors’ forum or the national economic council, they are unlikely to give you one hour or two hours, so there was a particular meeting where we got 15 minutes,” he disclosed .

He added: “We understand they have a very busy schedule.  We also recognise that they may not be in the best place to deal with the technicalities of what we were dealing, that is why we spent more time with their finance commissioners and with the revenue service chairpersons across Nigeria.”

Stressing that Tinubu has never interfered in the work of the committee, he said that the body was able to convince the federal government to reduce its share of VAT from 15 per cent to 10 per cent, reallocating the remaining 5 per cent to states,.

 “This amount exceeds what states currently collect from multiple consumption taxes and ensures efficient, centralised tax collection,” Oyedele argued.

He also dismissed allegations of third-party involvement in tax administration, especially consultants, noting that the bills explicitly prohibit the use of such consultants for tax collection or assessment.

Separately, Special Adviser to  President Bola Tinubu on Policy Communication, Daniel Bwala, has said that the opposition from the north against the bill was just a mere plot for political negotiate

Speaking on Arise television programme, Prime Time, Bwala said: ”I have a feeling that this whole opposition thing, I see it even more of playing the politics for negotiation.”

Bwala, who hails from Borno, said contrary fears expressed in some quarters , the bills would not impoverish the north.

“I am from the north, and I am really saddened by the notion generated in the media that it is a north versus the south thing. This is not from the media in the sense of media people, but people creating the narrative that the tax reform bills are built or designed to afflict the north.

“I have seen lots of northerners who supported the bill, lots of them from different parts of the north, north-central and north-west. The very opposite is the point of the bill, because if you say that the bill is going to impoverish the north or is going to afflict poor people, it is actually this proposed bill that is addressing the problem that the poor people encounter.

“But the reason why I’m very emphatic about this issue of poverty is because I come from the north and the conversation in the north is that this will bring poverty to you, or this one will impoverish you. The tax is in favour of the poor,” he maintained.

Also yesterday, the Senate directed its committee on finance to stop further actions on the landmark tax reform bills pending when grey areas of concern raised on the proposed legislations are properly addressed.

The Deputy President of the Senate, Jibrin Barau, who stated this at plenary, specifically asked the Senate Committee on Finance, to put the proposed public hearing on hold for now.

He said a team of the Senate will today (Thursday), meet a delegation of the federal government led by the Attorney General of the Federation and Minister of Justice, Lateef Fagbemi (SAN).

Barau said: “It’s on this note that the Committee on Finance that the bills have been referred to, should put on hold further action on it, that is, public hearing and other issues until we resolve these issues.

“All sides will be given the opportunity and we shall resolve the issues before anything is allowed to go.”

Barau said the proposed meeting with the AGF was aimed at resolving the criticisms on the proposed tax reform bills currently before the two chambers of the National Assembly.

Barau said the meeting will be held at the National Assembly Complex, Abuja and that it was necessary for the lawmakers to have extensive interaction with the government officials before passing the tax reform bills.

He said the Senate Minority Leader, Abba Moro will lead the senators in the meeting. Other senators who will attend the meeting according to the Deputy Senate President are: the Senate Chief Whip, Tahir Monguno; Adamu Ailero, (PDP, Kebbi Central), and  Seriake Dickson (PDP, Bayelsa  West).

Others are:  Titus Zam (Benue South), Abdullahi Yahaya (Kebbi), Adeola Olamilekan (APC, Ogun West), Sani Musa (APC, Niger East) and Adetokunbo Abiru (APC, Lagos East).

Barau said: “Of the tax reform bills that are before us, this is in consonance with the fact that we understand at all times that this Senate is the highest assembly in this country.

“The Senate is composed of men and women of wisdom, of pedigree that this country has entrusted to legislate for them for the peace and tranquility and the development of this country. The Senate of the Federal Republic, as known by everyone and indeed other Senates in the entire world, are known to be the stabilisers of every country.

“When there are difficulties and disagreements, the Senate of this country comes in with solutions through dialogue and consensus at all times to solve such problems, and the Senate of the Federal Republic of Nigeria has been doing that since 1999.

“Because of this, we decided to put politics, ethnicity, and regionalism aside to sit among ourselves and find the way forward with respect to the issues surrounding the tax reform bills.

“It is on this note that we extended our view to the executive arm of government and it was agreed that there should be a forum to sit down to look at the areas that are creating disagreements to resolve them so that the entire country will remain united – united in our effort to solve our problems.

“Before the introduction of these bills,  we know we’ve been faced with several problems and insecurity that we’ve been trying to solve. The president has been trying, and we’re also working with him to solve issues about our economy, which is in line with global economic problems.

“We also agree that we shouldn’t allow anything else to aggravate our country’s problems. It is on this note that it has been agreed by the executive and also by us that there should be a forum that will sit with the Attorney General of the Federation (AGF)  so that we can sit down and sort out all these problems in the interest of this nation,” he stated.

He  therefore proposed that by tomorrow (Thursday) there will be a meeting with the committee to sit with the Attorney General of the Federation to look at the issues and resolve them.

President Bola Tinubu had on Tuesday directed the Ministry of Justice to work with the National Assembly to address some of the concerns generated by the Tax Reform Bill currently before the Legislature.

The Minister of Information and National Orientation, Mohammed Idris who disclosed this in statement he issued in Abuja, said the nationwide debate on the new tax reform bills was commendable.

Meanwhile, the Colleges of Education Academic Staff Union (COEASU) has warned of grave consequences for the Tertiary Education Trust Fund (TETFund), if the bills are passed and implemented

The teachers’ union said if the bill sails through in the National Assembly, the sources of funding for TETFund might become impeded, thereby stifling the tertiary education in the country.

In a statement issued in Abuja, COEASU President, Dr. Smart Olugbeko criticised aspects of the proposed tax administration reforms, which he said threaten to cut off TETFund’s critical funding sources.

He described the move as a “dangerous ambush” that could severely undermine the development of public tertiary institutions in Nigeria.

He argued:  “Our Union, COEASU, has noted with serious concern the inimical effect of the proposed tax reforms of the federal government on tertiary education in Nigeria.

“The tax reform is nothing but a dangerous ambush aimed at destroying public tertiary institutions in Nigeria. We strongly reject the aspects of the proposed tax administration which aims to withdraw or impede on the source of fund to TETFund.

“Such injury, if allowed to stand, is bound to undermine the development of public tertiary education in Nigeria,” Olugbeko added.

Emphasising the pivotal role of TETFund, Olugbeko noted that the fund was a product of decades-long advocacy by academic unions, particularly the Academic Staff Union of Universities (ASUU), adding that before its establishment, Nigeria’s tertiary institutions were grappling with decayed infrastructure and inadequate funding.

“It is shocking to note that no Nigerian government in the last two decades or more has committed up to 9 per cent of the annual budget to education despite UNESCO’s recommendation of 26 per cent,” the statement added.

COEASU warned that withdrawing TETFund’s funding source could push public tertiary institutions into the stock market, transforming them into profit-driven ventures accessible only to the wealthy.

“Except for TETFund, which has become the spine and lifeblood of public tertiary education funding, Nigerian universities, polytechnics, and colleges of education would have gone comatose.

“TETFund has been playing an indispensable role in the development of tertiary institutions in Nigeria, providing funding for infrastructure, research, teaching, and staff development,” Olugbeko stated.

COEASU accused the political elite of attempting to dismantle public tertiary institutions in favour of private, profit-driven alternatives, as was done with public secondary schools.

“Rather than killing TETFund through the purported tax reform, the federal government should strengthen and expand its revenue accrual sources with a view to sustaining the fund’s commendable efforts in our institutions,” Olugbeko stressed.