- The Nigerian House of Representatives approved a bill to revise the country's VAT distribution formula
- The new formula ensured a distribution based on consumption, population, and equal shares, allocating 55% to states and 35% to local governments
- The committee retained a 30% corporate income tax rate, with priority sector companies benefiting from a 25% rate for five years
The House of Representatives has approved a new formula for the distribution of Value Added Tax (VAT) revenue, with 55% allocated to states and 35% to local government councils.
This decision followed the adoption of a report from the Committee on Finance, which reviewed four tax-related bills presented by President Bola Tinubu in October 2024.
Reps approves 50% VAT to states, others
The report, which was presented by Committee Chairman Abiodun Faleke on Thursday, March 13, 2025, was the result of an extensive review process, including a public hearing held from February 26 to February 28, 2025.
The House reviewed the report clause by clause before approving it in a session led by Speaker Tajudeen Abbas.
A significant aspect of the report was the recommendation to revise the VAT distribution structure, which had been a point of contention between state governors and the Presidency.
The new distribution plan allocates 50% of VAT revenue equally among states, 20% based on population, and 30% according to consumption.
LG to receive 35% of VAT revenue
The framework emphasised that the distribution should be based on where consumption occurs, rather than where tax returns are filed. Local governments will receive 35% of VAT revenue, following a similar allocation model.
In addition to the VAT distribution changes, the report proposed extending the time allowed to issue Taxpayer Identification Numbers (TIN) from two to five working days to address potential administrative challenges.
Any refusal to issue a TIN must be justified and communicated to the applicant. Furthermore, the deadline for companies to file tax returns after ceasing operations was reduced from six months to three months to avoid revenue losses.
The report also addressed fairness in tax allocation by suggesting that the distribution of VAT revenue should be based on taxable supply consumption rather than the location of company headquarters.
AGF to deduct unremitted taxes directly from MDAs
The Federal Inland Revenue Service (FIRS) was tasked with implementing additional regulations to enforce the new system.
A key provision in the report called for National Assembly approval for any tax remission granted by the President or governors. Presidential tax exemptions will also require approval from the National Assembly.
Additionally, the Office of the Accountant General would be authorised to deduct unremitted taxes directly from Ministries, Departments, and Agencies (MDAs) at the source, subject to legislative approval.
The committee further recommended enhancing representation on the FIRS Board by appointing six Executive Directors, one from each geopolitical zone, on a rotating basis.
Representatives from each state and the Federal Capital Territory will also be included to ensure federal character compliance. Moreover, the committee proposed a fixed 4% cost of collection for the FIRS, subject to National Assembly appropriation.
Corporate income tax rate to remain at 30%, others
The report also suggested that the Tax Appeal Tribunal be funded by the Consolidated Revenue Fund, reducing its current reliance on the FIRS.
The committee recommended that companies claiming capital allowances for priority sector incentives must obtain a Certificate of Acceptance, which will be certified by the Industrial Inspectorate Department of the Federal Ministry of Industry, Trade, and Investment.
As for corporate income tax, the committee decided to maintain the 30% rate for companies, rather than introducing a gradual reduction. However, companies in priority sectors will continue to benefit from a 25% tax rate for the next five years.
The bill also proposed expanding the beneficiaries of the Development Levy, with significant allocations to various funds, including the Tertiary Education Trust Fund (50%), the Nigerian Education Loan Fund (3%), the National Information Technology Development Fund (5%), and other key sectors such as the Defence Infrastructure Fund and the Nigeria Police Trust Fund.
The bills were expected to be read for a third and final time before being passed into law.
House of Reps adopts tax reform bills, keeps VAT at 7.5%
Meanwhile, TheRadar earlier reported that the House of Representatives adopted the tax reform bills.
The bills’ adoption followed a clause-by-clause consideration of the bills’ reports during the plenary.