The House of Representatives has approved a new formula for distributing Value Added Tax (VAT) revenue, with 55% allocated to states and 35% to local government councils. This move follows the adoption of a report from the Committee on Finance, which reviewed four tax-related bills presented by President Bola Tinubu in October 2024.
The report, presented by Committee Chairman Abiodun Faleke on Thursday, March 13, 2025, was the result of a comprehensive review process, including a public hearing held from February 26 to February 28, 2025. After reviewing the report clause by clause, the House approved it in a session led by Speaker Tajudeen Abbas.
A key aspect of the report was the recommendation to revise the VAT distribution structure, which had been a contentious issue 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.
Additionally, local governments will receive 35% of VAT revenue, following a similar allocation method. The framework emphasizes that the distribution should be based on where consumption occurs, not where tax returns are filed.
The report also proposed extending the time allowed to issue Taxpayer Identification Numbers (TIN) from two to five working days to address 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 shortened from six months to three months to prevent revenue losses.
To ensure fairness in tax allocation, the report recommended that VAT revenue distribution be based on taxable supply consumption, rather than the location of company headquarters.
The Federal Inland Revenue Service (FIRS) was tasked with enforcing the new regulations. A significant 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 National Assembly approval.
The report also gave the Office of the Accountant General the authority to deduct unremitted taxes directly from Ministries, Departments, and Agencies (MDAs) at the source, with legislative approval.
Further recommendations included enhancing FIRS Board representation by appointing six Executive Directors, one from each geopolitical zone, on a rotating basis. The committee also proposed including representatives from each state and the Federal Capital Territory to ensure federal character compliance, and a fixed 4% cost of collection for FIRS, subject to National Assembly appropriation.
Regarding corporate income tax, the report decided to maintain the 30% rate for companies, instead of reducing it gradually. 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 major 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 like the Defence Infrastructure Fund and the Nigeria Police Trust Fund.
The bills are expected to be read for a third and final time before being passed into law.
Earlier, TheRadar reported that the House of Representatives had adopted the tax reform bills following a clause-by-clause review during the plenary.
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