Reps Revise Tax Reform Bills, Retain 7.5% VAT, and Amend Revenue Sharing Formula
The House of Representatives has amended President Bola Tinubu’s contentious tax reform bills, addressing key concerns raised by various stakeholders. The reform bills, which aim to overhaul Nigeria’s tax system, include measures related to the assessment, collection, and distribution of federal, state, and local government revenue, the establishment of the Nigeria Revenue Service, and the creation of new taxation frameworks. These bills also seek to harmonize tax administration and resolve revenue-related disputes through mechanisms such as the Joint Revenue Board and Tax Appeal Tribunal.
Among the most debated amendments is the revision of the revenue sharing formula. The House modified the proposed 60% derivation model to a 30% consumption-based approach, ensuring a more balanced distribution of revenue. The amended formula allocates 10% of the net revenue to the Federal Government, 55% to State Governments and the Federal Capital Territory, and 35% to Local Governments. Additionally, the value-added tax (VAT) distribution now includes a 50% equal share, 20% based on population, and 30% according to consumption, replacing the former system that saw 15% allocated to the federal government and 50% to states.
One of the significant amendments was the decision to retain the current VAT rate of 7.5%, despite proposals for an increase, which had sparked backlash, particularly from northern stakeholders. The committee, after consulting with various groups, chose to leave the VAT unchanged. Furthermore, the House removed the controversial clause on the introduction of inheritance tax and the proposed protection of specific government agencies, such as NASENI, TETFUND, and NITDA, from taxation.
Other adjustments include new rules for free trade zones, which would now require operators to maintain a higher export ratio (75%) compared to activities outside the zones (25%) to qualify for tax benefits. The House also placed limits on the president’s powers regarding income tax exemptions, mandating National Assembly approval for such decisions, ensuring greater legislative oversight in tax-related matters.
SOURCE: BUSINESS DAY