Toba Owojaiye reporting
Abuja, Nigeria
The House of Representatives, on Thursday, approved a new Value Added Tax (VAT) sharing formula, allocating 55% of VAT revenue to states and 35% to local government councils.
Truth Live News gathered that the decision followed the adoption of a report by the House Committee on Finance on four tax bills transmitted to the National Assembly by President Bola Tinubu in October 2024. The bills aim to reform Nigeria’s tax administration, improve revenue generation, and address concerns raised by states and local governments.
Revised VAT Sharing Formula
The new VAT framework, outlined in Section 77 of the report, aims to ensure fair distribution of revenue. For states, 50% of VAT revenue will be distributed equally, 20% based on population, and 30% based on consumption. Notably, the emphasis is placed on the actual place of consumption, rather than the location where tax returns are filed.
Local governments will receive 35% of VAT revenue under a similar allocation method, reinforcing their financial autonomy.
Additionally, the timeline for issuing Taxpayer Identification Numbers (TIN) has been extended from two to five working days, and any refusal to issue a TIN must be justified and communicated to the applicant.
Corporate Tax Filing Adjustments
To mitigate revenue losses, the timeframe for companies ceasing operations to file tax returns has been reduced from six months to three months. The committee also recommended that tax allocation should be determined by taxable supply consumption, ensuring fairness for states where company headquarters are concentrated but economic activity occurs elsewhere.
On fiscalisation, the Federal Inland Revenue Service (FIRS) will establish further regulations to enforce the newly introduced system.
Additionally, Section 74 mandates that any tax remission by the President or a governor must receive approval from the National Assembly or respective state Houses of Assembly. Section 75 stipulates that presidential tax exemptions must also be approved by the National Assembly.
To strengthen tax compliance, Section 76 authorizes the Office of the Accountant General to deduct unremitted taxes from Ministries, Departments, and Agencies (MDAs) at the source, subject to National Assembly approval.
Representation and Revenue Collection
To enhance regional representation, the committee proposed appointing six Executive Directors to the FIRS Board, with one from each geopolitical zone on a rotational basis. Each state and the Federal Capital Territory (FCT) will also have a representative to ensure federal character compliance.
The committee recommended a fixed 4% cost of collection for the FIRS, to be appropriated by the National Assembly, and proposed that the Tax Appeal Tribunal should be funded from the Consolidated Revenue Fund to ensure judicial neutrality.
Key Provisions of the Nigeria Tax Bill
Under the Nigeria Tax Bill, Section 27 mandates that companies enjoying priority sector incentives must obtain a Certificate of Acceptance from the Industrial Inspectorate Department at the Federal Ministry of Industry, Trade, and Investment to claim capital allowances.
The committee scrapped the previously proposed staggered reduction of corporate income tax, maintaining the current rate at 30%. However, companies in priority sectors will benefit from a reduced rate of 25% for five years.
Development Levy Adjustments
The revised bill also adjusts the distribution of the Development Levy to key national institutions, as follows:
Tertiary Education Trust Fund – 50%
Nigerian Education Loan Fund – 3%
National Information Technology Development Fund – 5%
National Agency for Science and Engineering Infrastructure – 10%
Defence Infrastructure Fund – 10%
Nigeria Police Trust Fund – 5%
National Sports Development Fund – 5%
Social Security Fund – 10%
National Board for Technological Incubation – 10%
National Cybersecurity Fund – 1%
The bills are expected to be read for a third and final time before being passed into law next week.
Context and Implications
The approval of this tax reform comes amid longstanding disputes between the federal government and state governors over revenue distribution. Many states have argued for a greater share of VAT revenue, especially given their role in facilitating economic activities.
The revised VAT allocation formula could significantly impact state finances, giving them more control over resources. However, the new corporate tax filing deadlines and stricter tax remittance policies may put additional compliance pressure on businesses and government agencies.
As the bills move toward final passage, stakeholders, including business leaders and state governments, will be closely watching how the reforms shape Nigeria’s fiscal landscape in the coming years.