Analyzing the Economic and Taxation Challenges in Northern Nigeria: A Call for Strategic Action
Teekay Adams
Writes from Bauchi
For Adeleke reporters
Kyautahtk@gmail.com
December 3rd, 2024
The issues raised about Nigeria’s economic dynamics and tax reforms, particularly with the introduction of Section 77 in President Tinubu’s Tax Reform Bill, bring to light significant challenges facing Northern Nigeria. Let’s address these points systematically:
1. Shrinking VAT Revenues Due to Alcohol Bans
The Northern states’ ban on the sale and consumption of alcohol directly affects their share of VAT revenue. Alcohol sales contribute significantly to VAT collections, primarily from Southern states that allow its sale. Sharing the revenue equally or based on population size seems unfair to states generating these taxes.
Why VAT Redistribution May Shrink:
A derivation-based VAT formula prioritizes the point of consumption over population or equal distribution. States like Lagos, which allow alcohol sales and have robust economic activities, would retain more VAT revenue under the new policy.
Northern states that restrict alcohol sales are indirectly depending on taxes from products they outlaw. This contradiction undermines fairness in revenue sharing.
Recommendation: Northern states should rethink their approach to VAT generation. If certain sources of VAT (like alcohol) are prohibited, alternative revenue streams must be developed to offset the losses.
2. Agriculture: A Path to Economic Independence
Agriculture holds untapped potential for Northern Nigeria. Comparisons to countries like Israel, the Netherlands, and Denmark demonstrate how small nations with strategic agricultural investments generate substantial export revenue.
Northern Nigeria’s Opportunity in Agriculture:
The region has vast arable land, favorable weather conditions, and a large labor force, yet its agricultural sector remains underdeveloped.
Developing agro-processing industries and livestock farming could transform the region into a major food supplier and exporter.
Examples like Niger State’s agricultural initiatives show that with proper investment in irrigation, mechanization, and modern farming techniques, the North could thrive without relying heavily on VAT revenue
Action Plan:
Invest in agricultural research and technology to improve productivity.
Develop infrastructure to support the storage, transportation, and export of agricultural products.
Create incentives for private-sector investments in agriculture and agro-processing.
3. Fair Tax Distribution and Northern Development
The existing tax redistribution framework disproportionately benefits states with higher consumption and economic activity. While Lagos generates over half of the nation’s VAT, it also retains a significant share, further consolidating its dominance.
Why Redistribution Based on Population Alone Is Flawed:
Population alone does not reflect economic contribution or needs. Regions that generate higher revenue deserve proportional benefits to fund infrastructure and services.
Over-reliance on equal distribution disincentivizes states from developing their economies.
Path Forward:
Northern leaders should advocate for a balanced VAT formula that considers both derivation and equitable development needs.
Focus on regional industrialization and diversification to reduce dependence on federal allocations.
4. Learning from Forward-Thinking Leadership
The success of governors like Niger State’s leader highlights the importance of visionary leadership. Niger has embraced agriculture and renewable energy, setting an example for other Northern states.
Key Lessons:
Prioritize self-reliance by developing local resources.
Foster innovation and partnerships to attract investments.
Conclusion: A Time to Wake Up
Northern Nigeria must move beyond reliance on federal allocations and embrace economic self-sufficiency. By leveraging its agricultural and human resources, the region can reduce its dependence on VAT revenue and compete on a national and global scale.
For this to happen, leaders and stakeholders must think outside the box, take responsibility for their development, and learn from successful models like Niger State. A united Northern strategy is essential to address the inequities in the proposed tax reforms and unlock the region’s potential.
The time to act is now. Let the North rise to the challenge.
