REVEALED! The Danger Of Tinubu’s Tax Reform To South-South & South-East

The recently proposed tax reform bill, submitted by President Bola Ahmed Tinubu (PBAT) to the National Assembly, has raised significant alarm, especially regarding the Value Added Tax (VAT) sharing formula embedded within it. This VAT provision, tucked away in the bill, has the potential to disproportionately benefit Lagos State at the expense of the entire Nigerian federation. Astonishingly, it appears that legislators and governors from the South-South (SS) and South-East (SE) regions have yet to fully grasp the repercussions of this provision, and to date, no comprehensive action has been taken by these leaders to counter its potential impacts.

A Closer Look at VAT and "Head Office Syndrome"

To understand the implications of this reform, one must first grasp how VAT functions in Nigeria. VAT is a tax on goods and services, and it is intended to reflect the value of economic activity in various parts of the country. However, Nigeria operates under a "head office syndrome" system, where VAT from companies with national operations is remitted to the head office's location. This means that companies like NBC, NBL, Shell, Agip, Mobil, Chevron, Chicken Republic, and others that serve consumers across Nigeria remit their VAT to Lagos State, where their head offices are based. This model creates a misleading picture, giving Lagos a vastly inflated revenue advantage as it collects VAT from nationwide transactions, making it seem as though these economic activities occurred solely within Lagos.

Consequently, Lagos State is reported to contribute over 50% of Nigeria's VAT revenue. While this might seem like a testament to Lagos's economic strength, it masks an underlying inequity in tax allocation. Economic activities that generate VAT revenue happen all over Nigeria, yet Lagos reaps the lion's share due to its status as the headquarters for these companies.

The Proposed Reform and its Implications

The proposed tax reform bill, however, seeks to go even further by introducing a derivative-based VAT reallocation formula. Under this framework, Lagos would retain nearly 80% of VAT generated nationally, simply by virtue of hosting company headquarters. This change threatens to funnel the bulk of Nigeria's VAT revenue into Lagos, depriving other regions of their fair share, despite the fact that VAT-generating activities are spread throughout the country.

For the South-South and South-East, this reform would be an economic blow. The SS/SE regions, which already face significant challenges, are at risk of seeing further marginalization. Oil-producing states in the South-South, which have lost oil companies to Lagos due to security and militancy issues, could now be on the verge of losing crucial tax revenues as well. Similarly, the South-East, which relies heavily on trade and commerce, could be severely affected as it sees its tax contributions being siphoned away to another region.

Northern Regions Take Precautions

While SE/SS leaders appear to be slow in addressing the reform's potential impacts, the northern regions have shown a proactive approach. The Northern Governors Forum has already established a study group to thoroughly examine the proposed tax reform bill, assessing its potential effects on their economies. Based on these insights, the Northern Governors Forum has directed its legislators to oppose the VAT reallocation changes within the bill. This response underscores the gravity with which the North views the reform and highlights a sharp contrast to the relative inaction in the South-South and South-East.

A Call for Action: The Need for Strategic Response

The urgent need for a coordinated response from SE/SS governors and legislators cannot be overstated. Experts in tax law, finance, and economics should be assembled to meticulously analyze the bill, examining its short- and long-term ramifications for the regions. Governors from these regions should collaborate to form a robust stance against any provisions that undermine their economic interests.

It is worth noting that the architects behind the tax reform bill are reportedly aligned with the "Tinubuist" ideology, aimed at further consolidating Lagos’s economic dominance. This strategy, whether intentional or not, represents a concentrated effort to direct more revenue towards Lagos and, possibly, Ogun State, while minimizing these states' obligations in tax contributions.

A Looming Economic Disadvantage

For the South-South, this reform echoes past issues when militancy and unrest, allegedly influenced by interests in Lagos, led to oil companies relocating their headquarters from the Niger Delta to Lagos. Now, these states could face a similar loss of tax revenue. Meanwhile, in the South-East, where commerce and trade thrive despite persistent agitation and unrest, there is a looming risk that tax contributions could be pulled away, following a pattern of external influences that have often placed the region at an economic disadvantage.

Who Bears the Burden?

It is critical to consider who will bear the brunt of this tax reform. Many traders, service providers, and small business owners, particularly from the South-East, conduct business nationwide. These individuals and businesses generate VAT revenue in every state where they operate. Yet, under the new reform, their tax contributions would be redirected to Lagos, effectively robbing their home states of essential resources for infrastructure, education, and social services.

Conclusion: An Urgent Appeal for Vigilance and Action

This tax reform proposal has far-reaching implications for the economic health and viability of the South-South and South-East regions. Without immediate action, these regions risk becoming increasingly marginalized within the national economic structure. Legislators and governors from SE/SS must rise to the challenge, recognizing the danger and engaging in concerted efforts to protect their regions' financial interests. This is not simply a matter of taxation—it is a matter of regional survival and equity within the Nigerian federation.

The time for SS/SE leaders to act is now. Failure to address this looming threat may lead to irreversible economic losses, further entrenching disparities and weakening the federation’s cohesiveness. The call is clear: protect the economic sovereignty of the South-South and South-East, or watch as crucial resources are siphoned away under the guise of tax reform. [OPINION]