The House of Representatives has endorsed a revised Value Added Tax (VAT) distribution model, allocating 55% of the revenue to states and 35% to local governments.
This approval came after the House Committee on Finance presented its report on four tax bills submitted by President Bola Tinubu in October 2024.
Chairman of the committee, Abiodun Faleke, introduced the report on Thursday, March 13, noting that the committee’s review incorporated insights from a public hearing held in February. Lawmakers examined and adopted each clause during a session presided over by Speaker Tajudeen Abbas.
New VAT Revenue Allocation
According to Section 77 of the Nigerian Tax Administration Bill, VAT distribution for states will follow this structure:
50% shared equally among all states
20% allocated based on population
30% determined by actual consumption
Similarly, local government areas will receive 35% of VAT proceeds using a comparable distribution formula. The revised framework prioritises where goods and services are consumed rather than where tax filings occur.
Tax Policy Adjustments
The committee also introduced amendments to corporate tax regulations and fiscal policies. Companies ceasing operations must now submit their tax filings within three months instead of the previous six-month window.
Additionally, the Federal Inland Revenue Service (FIRS) will implement new fiscalisation measures to improve tax compliance.
A significant change requires presidential or gubernatorial tax exemptions to receive legislative approval at the federal or state level. Furthermore, the Office of the Accountant General is now authorised to deduct outstanding taxes from Ministries, Departments, and Agencies directly.
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Reforms in FIRS and Tax Tribunal
To enhance regional representation, the FIRS Board will include six Executive Directors, each from a different geopolitical zone, serving on a rotational basis. Every state and the Federal Capital Territory will also have a designated representative.
To ensure impartiality, the Tax Appeal Tribunal will now be funded from the Consolidated Revenue Fund instead of relying on FIRS for financial support.
Corporate Tax and Development Fund Allocations
The committee opted to retain the corporate income tax rate at 30%, while businesses in priority sectors will continue benefiting from a reduced 25% tax rate for a five-year period.
Revised allocations under the Development Levy include:
50% for the Tertiary Education Trust Fund
10% for the Defence Infrastructure Fund
10% for the National Board for Technological Incubation
10% for the Social Security Fund
5% each for the Nigeria Police Trust Fund, National Sports Development Fund, and National Information Technology Development Fund
3% for the Nigerian Education Loan Fund
1% for the National Cybersecurity Fund
The tax bills are scheduled for a third reading next week, after which they are expected to become law.