What is Tinubu's tax reform bill, and why is the North against it?

President Bola Ahmed Tinubu's Tax Reform Bill has faced fierce opposition from nothern governors, lawmakers and the key political figures who argues that the bill is anti-north.

Among them is former Vice President Atiku Abubakr, Borno State Governor, Babagana Zulum, and others who have vowed to reject the bill, citing economic inequalities.

So, what exatcly is this bill and why are the northerner governors, lawmakers rejecting it?

What is Tinubu's Tax Reform Bill?

President Bola Tinubu's Tax Reform Bill aims to modernize Nigeria's tax system to increase revenue generation, simplify compliance and stimulate economic growth. Some of the key component of the tax bill include;

1. Corporate Income Tax (CIT): Small businesses with annual turnover below ₦50 million are exempted from CIT. Larger companies will see a reduction in the CIT rate from 30% to 25% by 2026.
2. Personal Income Tax (PIT): Progressive taxation exempts individuals earning up to ₦800,000 annually, while rates for higher-income brackets have been adjusted.
3. Value-Added Tax (VAT): A phased increase from 10% in 2025 to 15% by 2030, with exemptions for essential items like food and medical services to ease the burden on low-income earners.
4. Digital Economy Taxation: Introduces taxes on digital assets and fintech activities, aligning Nigeria’s policies with global standards.
5. Harmonization of Taxes: Consolidates multiple levies (e.g., education, NITDA, and NASENI taxes) into a single development levy, simplifying the tax structure.
6. Revenue Redistribution: Adjusts VAT sharing formulas to favor states, with an emphasis on derivation and population-based distribution.
7. Enhanced Compliance: The bill mandates financial institutions to report high-value transactions, ensuring wealthy individuals and corporations are taxed fairly. Automation and technology are prioritized for efficiency in collection and administration.
8. Support for Small Businesses: Turnover thresholds for tax exemptions are raised, offering relief to about 90% of small businesses in Nigeria.

Criticism from Key Political Figures

Former Vice President, Atiku Abubakar, one of the major critic of the tax reform bill emphasized the need for transparency and fairness in the legislative process, warning against reforms that could worsen uneven development among Nigeria’s states. He urged the National Assembly to focus on creating a fiscal system that promotes justice and equity. “The fiscal system we seek must not exacerbate the uneven development of the federating units by favouring a few states while unfairly penalising others,” Atiku said.

Governor of Borno State, Babagana Zulum in his disposition expressed alarm over the bill's fast-tracked legislative process, contrasting it with the decades-long deliberation on the Petroleum Industry Bill.

Speaking to BBC Hausa, he called for a more careful and inclusive approach to ensure the reforms benefit future generations. “Why the rush? This bill should be treated with caution to ensure lasting benefits,” he warned.

Former Governor of Sokoto state, Aminu Tambuwal in his dissenting voice described the timing of the tax reform as inappropriate, considering the economic strain caused by subsidy removal and naira devaluation. He advised the government to prioritize reducing hardship before introducing further fiscal adjustments. “This is the wrong time for any upward tax review,” he asserted during a recent event.

Also, joining the tax reform bill anti-suport group, Kano’s 24 federal lawmakers unanimously rejected the bill, citing the disproportionate burden it places on their region at a state caucus meeting chaired by Deputy Governor Aminu Gwarzo.

Key Concerns Raised by Northern Governors

1. Changes to VAT Revenue Sharing: The bill proposes a derivation-based VAT redistribution model, reducing the federal government’s share from 15% to 10%. Northern governors argue this approach disadvantages states with lower consumption levels, predominantly in the north.
2. Limited Local Economic Activities: Northern states, with fewer industries and corporate headquarters, fear a significant reduction in revenue under the derivation-based model.
3. Impact on Revenue Base: Provisions exempting minimum wage earners and small businesses from taxes could shrink the already narrow revenue pool for states struggling with high poverty and low development indices.
4. Reallocation of the Electronic Money Transfer Levy: The bill reallocates the levy exclusively to states, which could favor southern states with higher digital financial activity.
5. Implementation Costs: Northern governors raised concerns about the cost of setting up structures like the Tax Ombudsman and Joint Revenue Boards, which may strain their limited resources.
6. Potential Regional Disadvantage: Critics argue that the reforms fail to address structural inequalities in resource allocation and tax capacity, leaving northern states at a disadvantage.

Federal Government’s Position

Defending the bill, the federal government highlights its aim to modernize Nigeria’s tax system, encourage local economic development, and reduce reliance on federal allocations. The Presidential Fiscal Policy and Tax Reforms Committee has pledged to engage stakeholders, including northern governors, to ensure the reforms are equitable.