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Tax Reforms and the North

The federal Government in an effort to simplify taxation and foster equitable revenue distribution in Nigeria is deliberating on significant tax reform bills in the Senate. These reforms aim to revise the inefficiencies in tax administration while promoting fiscal independence for states. What does this mean for Northern Nigeria, and how can the North adapt to the changing realities to benefit from the changes?

Central to the reform is a proposed adjustment to the Value Added Tax (VAT) allocation formula. Presently, the federal government retains 15%, the states get 50%, and local governments receive 35%. While under the new proposal, the state’s share increases to 55%, the federal share drops to 10% and local governments retain 35%. Crucially, 60% of states’ VAT allocations will now depend on the derivation of each state’s economic activities and consumption.

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Other provisions include tax exemptions for individuals earning less than ₦70,000 monthly and small businesses with below ₦50 million turnovers. Corporate income tax is also reduced from 30% to 25% for two years to incentivise investments and job creation.

Implications for Northern Nigeria

For Northern Nigeria, which is known for its agricultural strength but underutilised resources, the derivation focused VAT formula presents opportunities and challenges. States with diverse economic activities will stand to gain more, while less industrialised one’s risk losing out, potentially deepening regional disparities. Despite this, there are opportunities to explore.

Opportunities

The North accounts for much of Nigeria’s agricultural output, particularly in grains, vegetables, and livestock. Investments in local processing industries, such as converting grains to flour or packaging fresh produce, can significantly boost VAT revenues. 

Also, states like Kano, Sokoto, and Kaduna have historically thrived on leather production. By modernising the hides and skins industry and investing in tanneries and value-added leather goods such as shoes, bags, and belts, these states can generate substantial revenue and attract international markets.

Northern Nigeria’s rich cultural heritage, including festivals like the Durbar in Kano, can be harnessed to promote tourism. This could stimulate spending, create jobs, and increase local tax revenues.

Targeted road improvements, power supply, and markets would encourage private sector participation, bolstering industrial activities and state income.

By investing in education and skills training, the North can empower its youth to drive entrepreneurship and innovation across industries, further enhancing state revenue.

Short and Long-Term Gains

For Short-Term Gains, the derivation based VAT model ensures states that stimulate local consumption and production see immediate financial benefits.

Also, expanding small and medium-sized enterprises (SMEs) and improving agricultural value chains can quickly reduce unemployment.

Economic Stimulation by enhancing infrastructure and industrial activities will lead to increased spending and investment.

While the Long-Term Gains will lead to Economic Independence.

Over time, Northern states can reduce reliance on federal allocations by diversifying revenue streams.

For sustainable growth Investments in industries, education, and health can guarantee continuous economic development.

A robust economic base will position the North to attract investors and compete favourably with other regions.

Learning from Kano’s Groundnut Pyramids

In the 20th century, Kano’s groundnut pyramids symbolised Northern Nigeria’s economic strength. The export of groundnuts generated revenue and drove the development of critical infrastructure such as railways and ports. Although this era has passed, there are lessons to be drawn about leveraging local resources to drive economic growth. Modern technology presents new opportunities to revitalise agriculture and develop high-value products for domestic and international markets.

What Are Nigerians Saying?

Public reactions to the reform have been mixed. Supporters applaud the emphasis on fiscal decentralisation, arguing that it empowers states to take control of their economic destinies. On platforms like X (formerly Twitter), others have raised concerns about the readiness of less developed regions like the North to adapt. Some users underscore the urgency of fostering local industries to meet the demands of derivation-based VAT allocation.

The tax reform is a wake up call for Northern Nigeria. It is time to leverage its strengths, including its agricultural potential, cultural heritage, and youthful population. States like Kano, Kaduna, Katsina, and Sokoto can spearhead economic transformation with their large populations and traditional industries, such as hides and skins. Nurturing SME growth, modernising sectors, and improving education and infrastructure, can generate sustainable wealth in the North.

As the power of a skilled and productive population cannot be overemphasized. Governors must work with private investors and communities to create policies that incentivise entrepreneurship and innovation. With proactive governance, Northern Nigeria can rise above its current challenges, meeting the reform’s demands while setting a foundation for lasting prosperity.

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