The House of Representatives has yesterday approved a new Value Added Tax, VAT sharing formula, allocating 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 transmitted to the National Assembly by President Bola Tinubu during the tax brouhaha in October last year.
Presenting the report, chairman of the committee, Abiodun Faleke, gave the summary of the extensive review process the document underwent, including a public hearing held from February 26 to February 28, 2025.
The report was scrutinized clause after clause and later adopted in a session presided over by the Speaker, Tajudeen Abbas, on Thursday.
Accordingly, the committee okayed 19 key recommendations under the Nigerian Tax Administration Bill, including a revised VAT distribution framework that had been a contentious issue between state governors and the Presidency.
Revised VAT sharing formula
Section 77 of the report introduces a new VAT distribution structure.
It was concluded as follows; States to get, 50% of the revenue to be distributed equally, 20% based on population, and 30% based on consumption.
The emphasis is placed on the actual place of consumption, regardless of where tax returns are filed.
Similarly, the Local governments will receive 35% of VAT revenue under same sharing formula.
Additionally, the timeline for issuing Taxpayer Identification Numbers has been extended from two to five working days to accommodate possible administrative challenges.
Any refusal to issue a TIN must be justified and communicated to the applicant.
Corporate tax filing
Meanwhile, the timeframe for companies ceasing operations to file tax returns has been reduced from six months to three months to mitigate revenue losses.
The committee also recommended that taxable supply consumption should determine tax allocation, ensuring fairness in regions where company headquarters are concentrated.
On fiscalisation, the Federal Inland Revenue Service 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.
Tax exemptions
Accordingly, Section 75 provides that presidential tax exemptions must be approved by the National Assembly.
Meanwhile, Section 76 authorises the Office of the Accountant General to deduct unremitted taxes from Ministries, Departments, and Agencies from the source, though, subject to National Assembly’s approval.
To enhance representation, the committee proposed appointing six Executive Directors to the FIRS Board, one from each geopolitical zone, in a rotational order.
Additionally, a representative from each state and the Federal Capital Territory will be appointed to ensure federal character compliance.
The committee recommended a fixed 4% cost of collection for FIRS, to be appropriated by the National Assembly.
It also proposed funding the Tax Appeal Tribunal from the Consolidated Revenue Fund, eliminating its current dependence on FIRS to ensure
judicial neutrality.
Nigeria tax Bill
More so, the Section 27 now requires a Certificate of Acceptance from companies enjoying priority sector incentive to claim capital allowance.
The industrial inspectorate Department at the Federal Ministry of Industry, Trade, and Investment will be responsible for certifying qualified expenditures.
However, the committee scrapped a previously proposed staggered reduction of the corporate income tax rate.
Instead, companies will continue to be taxed at 30%, while those on priority sector will continue to enjoy the reduced rate of 25% for a period of five years.
Development Levy Adjustment
The revised tax Bill also expanded the beneficiaries of the Development levy.
The Tertiary Education Trust Fund, TETFUND, will receive upto 50%, Nigerian Education Loan Fund, NELFUND, will receive 3%, the National Information Technology Development Fund, NITDA, 5%, while the National Agency for Science and Engineering infrastructure to go with 10%.
More so, the Defence Infrastructure Fund to receive 105 as well while the Nigerian Police Trust Fund to receive 5%, National Sport Development Fund, 5%, Social Securty Fund 10%, the National Board for Technological Incubation, 10%, and National Cybersecurity Fund 1%.
All the Bills are expected to be presented for the third and final reading at the hallow chamber before it will be okayed into the law latest by next week.
