By Kehinde Akinpelu, Ilorin
A tax expert, Dr. Francis U. Ubani, has raised concerns over the proposed Tax Reform Bills currently under review by the National Assembly, warning that the new revenue-sharing formula could significantly alter the financial balance among Nigeria’s states.
Speaking on the implications of the proposed changes, Dr. Ubani explained that the existing revenue-sharing structure distributes Value Added Tax (VAT) funds among the three tiers of government as follows: Federal Government (15%), State Governments (50%), and Local Governments (35%). However, the Tax Reform Bills propose a shift, reducing the federal share to 10% while increasing the state allocation to 55%, leaving local governments’ share unchanged.
Beyond the changes at the federal level, the biggest transformation lies in how states will receive their shares. Under the current system, state allocations are determined by, Population (30%) – Allocated based on population size, favoring populous northern states and Lagos
Derivation (20%) – Distributed based on states’ tax revenue contribution, benefiting commercial hubs like Lagos, Rivers, and Ogun
The new Tax Reform Bills propose a dramatic shift as
Equality drops from 50% to 20%, Population reduces from 30% to 20% and Derivation surges from 20% to 60%
Dr. Ubani noted that this shift would significantly favor states with high tax revenue contributions, such as Lagos, Ogun, Rivers, Oyo, Delta, and Bayelsa, while states that previously benefited from equality and population-based allocation—mostly in the North—could see a decline in their revenues.
Under the current system, all states benefit from equality-based sharing, while northern states and Lagos gain the most from population-based allocation. However, with derivation increasing to 60%, industrialized and tax-heavy states stand to gain the most.
Dr. Ubani described the new formula as a potential game-changer that could widen economic disparities between states. “The shift prioritizes tax revenue generation, meaning states with lower economic activity and industrial presence may struggle with reduced allocations,” he warned.
As the National Assembly continues deliberations, the proposed tax reforms have sparked debate among policymakers, with some arguing for a more balanced approach to ensure that less industrialized states are not left behind.
