The League of Northern Democrats, (LND), has expressed its support for the Nigeria Governors’ Forum’s (NGF) recent endorsement of a revised Value-Added Tax (VAT) sharing formula, but raised a significant concern over the definition of the word: “derivation”.

In a statement released following the NGF’s meeting with the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, on January 16, 2025, LND acknowledged the NGF’s proposal to allocate VAT revenue as follows: 50% based on equality, 30% on derivation, and 20% on population. This formula, the LND noted, aligns with the recommendations of its Technical Committee on Tax and Fiscal Reforms, which were made public on December 19, 2024.
The group commended the NGF for recognizing the need for comprehensive tax reforms to modernise Nigeria’s fiscal system, enhance stability, and align with global best practices. However, it highlighted a critical omission in the NGF’s communiqué – the lack of a clear definition of the word: “derivation”.
According to the LND, for any tax reform to achieve equity, fairness, and sustainability, “derivation” must be explicitly defined as the place of consumption. This principle, a cornerstone of LND’s recommendations, is seen as essential to preventing regional inequalities that may arise if the increased derivation percentage disproportionately benefits certain areas.
“The absence of clarity on this matter undermines the principles of equity that the reform seeks to achieve in the first place”, the statement read.
LND argued that tying derivation to the area of consumption would ensure resources are distributed based on actual economic activity and contribution. This approach, the group said, aligns with modern taxation practices and would promote accountability while incentivizing regions to develop their economic capacities.
Until this issue is resolved, LND stated it would withhold full support for the proposed tax reforms. The group urged the NGF and the Presidential Tax Reform Committee to address this fundamental clarification and incorporate other amendments, including an inheritance tax clause, into the framework to ensure equitable and beneficial outcomes for all Nigerians.
“As stakeholders committed to our regional and national development, LND reiterates its readiness to work collaboratively with all parties to ensure these reforms succeed in fostering fairness, growth, and prosperity for our people”, the statement concluded.