The League of Northern Democrats (LND), led by former Kano State Governor, Senator Ibrahim Shekarau, has rejected the proposed derivation formula in the ongoing tax reform discussions, warning that it could deepen regional inequalities if not explicitly defined.
In a statement released on Sunday, LND spokesperson, Dr. Ladan Salihu, commended the Nigeria Governors’ Forum (NGF) for endorsing a revised Value Added Tax (VAT) sharing formula of 50% based on equality, 30% on derivation, and 20% on population.
However, the group raised concerns over the absence of a clear definition for “derivation” in the proposed framework.
“LND welcomes the NGF’s recognition of the need for comprehensive tax reforms to modernize Nigeria’s fiscal system, enhance stability, and align with global best practices. However, there is one critical issue overlooked in the Governors Forum’s communiqué: the definition of ‘derivation,’” Salihu said.
The group stressed that derivation must be defined as “the place of consumption,” arguing that this approach ensures fair resource distribution based on economic activity and contributions.
Without such clarity, the LND warned, the proposed 30% derivation allocation risks exacerbating disparities, disproportionately benefiting certain regions at the expense of others, particularly the North.
“Without this definition, the principles of equity that the reform seeks to achieve will be undermined. Tying derivation to the area of consumption not only reflects modern taxation realities but also promotes accountability and incentivizes economic development across regions,” Salihu added.
The tax reform proposals have sparked intense debates nationwide, with significant opposition from Northern governors and leaders. Many argue that the reforms are skewed to favor Lagos State and a few other regions, thereby shortchanging the North.
In its statement, the LND urged the NGF and the Presidential Tax Reform Committee to incorporate its recommendations, including amendments to the inheritance tax clause, into the framework.
The group vowed to withhold full support for the reforms until these critical issues are resolved.