A significant shift in Nigeria’s financial landscape is underway as the House of Representatives has approved a new Value Added Tax (VAT) sharing formula, granting states a larger share of revenue. Hobnob News reports that this move, part of a broader tax reform initiative, aims to redistribute fiscal power and enhance financial autonomy for subnational governments.
On Thursday, the House adopted the report of its Committee on Finance, which had been reviewing four crucial tax bills submitted by President Bola Tinubu. The report, presented by committee chairman Abiodun Faleke, followed extensive deliberations and a public hearing, culminating in a clause-by-clause consideration and approval by the House, presided over by Speaker Tajudeen Abbas.
The most notable change is the revised VAT distribution framework, a subject of contention between state governors and the federal government. Section 77 of the report introduces a new structure, allocating 55% of VAT revenue to states and 35% to local government councils.
For states, the 55% share will be distributed as follows: 50% equally, 20% based on population, and 30% based on consumption. Crucially, the emphasis is placed on the actual place of consumption, ensuring that revenue is allocated fairly regardless of where tax returns are filed. Local governments will receive their 35% share under a similar formula.
Beyond VAT distribution, the House approved several other key recommendations. The timeline for issuing Taxpayer Identification Numbers (TINs) has been extended from two to five working days, with a requirement for justification in case of refusal. The timeframe for companies ceasing operations to file tax returns has been reduced from six months to three months, aimed at mitigating revenue losses.
The committee also recommended that taxable supply consumption should determine tax allocation, ensuring fairness in regions with concentrated company headquarters. Fiscalization will be enforced through regulations by the Federal Inland Revenue Service (FIRS). Presidential or gubernatorial tax remissions must now receive approval from the National Assembly or state Houses of Assembly.
To enhance FIRS representation, the committee proposed appointing six Executive Directors, one from each geopolitical zone, on a rotational basis, along with representatives from each state and the Federal Capital Territory. A fixed 4% cost of collection for FIRS, appropriated by the National Assembly, was also recommended. The Tax Appeal Tribunal will now be funded from the Consolidated Revenue Fund, ensuring its independence.
Under the Nigeria Tax Bill, a Certificate of Acceptance is now required for companies claiming capital allowances under priority sector incentives. The previously proposed staggered reduction of the corporate income tax rate was scrapped, with companies continuing to be taxed at 30%, while priority sectors enjoy a reduced rate of 25% for five years.
The revised bill also expands the beneficiaries of the Development Levy, including the Tertiary Education Trust Fund, the Nigerian Education Loan Fund, and the National Cybersecurity Fund, among others.
These tax reforms are expected to be read for a third and final time before being passed into law next week. The changes are poised to have a profound impact on Nigeria’s fiscal landscape, empowering states and reshaping the distribution of wealth. Hobnob News will continue to monitor the progress of these bills and their implications.
