The House of Representatives has approved a revised Value Added Tax (VAT) sharing formula, granting 55% to states and 35% to local government councils.
This decision followed the adoption of a report by the House Committee on Finance on four tax bills sent to the National Assembly by President Bola Tinubu in October 2024.
Breakdown of the New VAT Distribution
Under Section 77 of the report, VAT revenue allocation to states will be structured as follows:
- 50% distributed equally
- 20% based on population
- 30% based on consumption
Local governments will receive their 35% share using the same formula, prioritising actual consumption over where tax returns are filed.
Key Tax Reforms Introduced
The committee’s recommendations cover various aspects of tax administration, corporate tax filing, and fiscal regulations.
- Taxpayer Identification Number (TIN): The issuance timeline has been extended from two to five working days. Any refusal must be justified and communicated.
- Corporate Tax Filing: Companies ceasing operations must now file tax returns within three months instead of six, reducing revenue losses.
- Tax Allocation: Taxable supply consumption will determine tax distribution, addressing concerns about companies filing from headquarters in different locations.
- Fiscalisation Measures: The Federal Inland Revenue Service (FIRS) will implement new regulations to enforce tax compliance.
Oversight on Tax Remissions & Exemptions
- Presidential & Gubernatorial Tax Remissions: Section 74 mandates that any tax waivers by the President or governors must be approved by the National Assembly or state Houses of Assembly.
- Tax Exemptions: Section 75 requires the National Assembly’s approval for any presidential tax exemptions.
- MDAs’ Tax Compliance: Section 76 authorises the Accountant General’s Office to deduct unremitted taxes at the source, subject to legislative approval.
Reforms in Tax Governance & Funding
- FIRS Board Composition: Six Executive Directors will be appointed, representing each geopolitical zone on a rotational basis. Additionally, every state and the FCT will have a representative to ensure federal character compliance.
- FIRS Funding: A fixed 4% cost of collection will be appropriated by the National Assembly.
- Tax Appeal Tribunal: Funding will now come from the Consolidated Revenue Fund, removing reliance on FIRS to ensure judicial neutrality.
Corporate Tax & Development Levy Adjustments
- Corporate Tax Rate: The previously proposed staggered reduction was scrapped. Companies will continue paying 30%, while those in priority sectors will enjoy a reduced 25% rate for five years.
- Development Levy Allocations: The revised bill expands funding for various sectors, including:
- TETFund (50%)
- Nigerian Education Loan Fund (3%)
- National Information Technology Development Fund (5%)
- Defence Infrastructure Fund (10%)
- Social Security Fund (10%)
- National Cybersecurity Fund (1%)
The bills are expected to be read for a third time and passed into law next week.