VAT Scandal Unveiled: South-West Contributes N930B, Gets Only 28% Back in Q1 2025!

Published by Insight by Oppy | May 28, 2025

In what many are calling an economic bombshell, the latest data from the Federation Account Allocation Committee (FAAC) has exposed a glaring imbalance in Nigeria’s Value Added Tax (VAT) distribution system for the first quarter of 2025. The data, shared by @thecableindex on X (formerly Twitter), has ignited a firestorm of criticism, particularly from the South-west and South-south regions, who appear to be unfairly burdened under the current fiscal structure.

The Numbers That Sparked Outrage

According to the FAAC Q1 2025 report:

South-west contributed ₦929.87 billion but received only ₦258.19 billion, which amounts to just 28% of what it put into the national VAT pool.

South-east contributed a mere ₦28.37 billion but astonishingly received ₦104.50 billion – a 368% return.

North-east contributed ₦30.04 billion and got back ₦124.20 billion, a 345% gain.

North-west put in ₦68.05 billion and was allocated ₦176.74 billion, representing 260% of its input.

South-south contributed ₦364.99 billion but received only ₦171.19 billion, or 47% of its input.

This startling disparity has once again exposed deep-rooted tensions within Nigeria’s federal structure, where productive states continue to subsidize less economically active regions under the guise of national unity and shared prosperity.

Public Reactions: “Criminal,” “Disturbing,” “Unproductive”

The post featuring South-east governors went viral, sparking passionate reactions across the country:

@OladeleCeeyon, a user from the South-west, slammed the redistribution as “criminal,” saying the region is being forced to shoulder the weight of what he called “deadwood states.”

@Icon_Ayodeji called the figures “disturbing,” questioning how long such economic injustice could persist without serious political consequences.

@GeorgeAchor stirred controversy by calling the South-east “unproductive,” pointing to the massive gap between their contributions and allocations.

While comments have ranged from outrage to open ethnopolitical criticism, they underscore one undeniable truth: Nigeria’s VAT system is fundamentally flawed and urgently in need of reform.

The Root of the Crisis: Nigeria’s Controversial VAT Formula

VAT, a consumption tax collected nationwide and redistributed by the Federal Government, has long been criticized for not rewarding productivity. Currently, all VAT revenue is pooled and shared among the three tiers of government based on a formula that includes:

Population

Equality of states

Derivation (15%)

This means highly industrialized and commercially vibrant states like Lagos, Rivers, and Ogun—primarily in the South-west and South-south—contribute the bulk of VAT but receive disproportionately little in return. Meanwhile, states with low commercial activity continue to enjoy windfalls, enabling them to function with minimal internal revenue generation.

Why This Matters: The Case for Derivation-Based Reform

At the heart of this controversy is the principle of derivation, which advocates that states should retain a larger portion of the revenue they generate. Proponents argue this will incentivize internal development, promote regional competition, and reduce the overdependence on federal allocations.

Already, voices from the South-west and South-south are pushing for reforms:

Reintroduction of state-level VAT collection, as attempted by Lagos and Rivers in 2021 before it was struck down.

Amendment of the VAT Act to allow 50% derivation for contributing states.

Greater transparency in FAAC allocations and the criteria behind them.

National Unity vs Economic Justice

Critics of the current model argue that forcing productive states to carry the weight of less productive ones undercuts the incentives for innovation and growth. At the same time, federalists warn that pushing too far in favor of derivation could erode national unity and widen regional disparities.

This VAT scandal is not just about numbers—it is a mirror reflecting the underlying cracks in Nigeria’s federal structure. With economic reform on the national agenda and fiscal federalism gaining momentum, the time has come for urgent dialogue to redesign a revenue allocation system that is both just and sustainable.

Nigeria stands at a fiscal crossroads. The current VAT arrangement risks stifling productivity, breeding resentment, and undermining regional cooperation. To move forward, the nation must balance economic justice with national solidarity. One thing is clear: the people are watching, and silence is no longer an option.