Nigeria tax spat opens country’s smouldering north-south divide

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Nigeria’s government is facing stiff opposition to a controversial tax reform bill that northern leaders say favours more productive southern states, reawakening a historic regional divide in Africa’s most populous country.

Nigeria’s parliament late last month began deliberating on four bills proposed by President Bola Tinubu’s administration, including the so-called “Nigeria Tax Bill”, to streamline tax codes and generate more revenue for a government whose tax collection lags behind its African counterparts.

But the proposal on how VAT should be shared among Nigeria’s 36 states and capital city Abuja has become the subject of vociferous debate.

The reforms would allow states that generate more VAT — the largest line item Nigeria’s federal government distributes — to receive a larger share of total revenue while reducing the amount allocated by population.

Northern states, which are typically more populous, say this will disadvantage them and exacerbate inequality. Inuwa Yahaya, chair of the Northern Governors Forum, which represents the 19 governors across Nigeria’s vast north, said it “could jeopardise the wellbeing of our people”.

“The economic hardship faced by many Nigerians today is undeniable and given the north-south disparity in economic inequality, it is even more pronounced in northern Nigeria,” Yahaya, who is governor of Gombe State in the north-east, said.

Nigeria’s north-south divide has long been a bitter element of the country’s politics. The predominantly Muslim north and Christian south, with their varied ethnic groups, were fused together as one country by British colonialists more than a century ago, leaving mutual suspicion that still reverberates.

After Tinubu — who is from Lagos in the south — threatened military intervention in Niger following a coup last year, he was forced to back down by northern elites whose states share a long border with the country.

Poverty and illiteracy rates are higher in Nigeria’s north. Annual GDP per capita is about $292, less than half of the south’s, and 65 per cent of the country’s poorest people live in the north.

Currently, 50 per cent of the total VAT distributed to states is shared equally, while 30 per cent is allocated based on population size and 20 per cent by their tax contribution, or derivation. Tinubu now wants 60 per cent to be allocated based on contribution, while cutting the population quota to 20 per cent.

Northern lawmakers, including some from Tinubu’s All Progressives Congress, have stalled the bills in parliament amid calls for further dialogue. But Senate president Godswill Akpabio, a staunch Tinubu ally, said in late December the bills would eventually pass and claimed critics had not taken the time to understand them.

Waziri Adio, executive director at Agora Policy, an Abuja-based think-tank which published an analysis of Nigeria’s VAT system, said all parties involved had mishandled what were otherwise important reforms. The federal government tried to rush through the proposal and northern leaders were misguided in labelling it “anti-north” in a country with long-standing ethnic tensions, he said.

“The arguments in favour of reforming Nigeria’s tax system cannot be over-made,” Adio said. “But reforms are as political as they are technical. You need the buy-in of the various stakeholders . . . Just because it seems like the right thing to do doesn’t mean you don’t have to consult.”

While there have long been arguments that the current arrangement benefits lower productivity states with higher populations, opponents of the new proposal argue it risks misstating Nigeria’s true economic picture.

Because the largest taxpaying companies are in the south, particularly in states such as Lagos and Rivers, critics say they could be benefiting from “headquarters effect” as VAT derivation is calculated based on where revenues are collected and not necessarily where goods and services are consumed.

Dauda Lawal, governor of Zamfara in the north-west, said on national television that “some states may not be able to survive” the reforms.

A survey of business owners by SBM Intelligence, a Lagos-based consultancy, found that respondents viewed streamlining taxes favourably but urged the government to better inform citizens about the proposal instead of rushing it through.

“Every reform is difficult but you always need to carry your people along,” said Bunmi Bailey, head of research at SBM. “From what we’ve heard people are in favour but they want the technicalities to be simplified.”

Cartography by Steven Bernard and data visualisation by Martin Stabe