Lawmakers have approved a new Value Added Tax (VAT) sharing formula, allocating 55% to states and 35% to local government councils.
In October 2024, President Bola Tinubu transmitted the four tax bills to the National Assembly. The new VAT decision, taken on Thursday, followed the adoption of a report by the House of Representatives Committee on Finance on the bills.
The chairman of the committee, Abiodun Faleke while presenting the report on Thursday, summarized the extensive review process. This followed a public hearing held from 26 to 28 February 2025.
In the session presided over by the Speaker, Tajudeen Abbas, the committee presented 19 key proposals under the Nigerian Tax Administration Bill. They included an updated framework for VAT distribution, which had been a point of contention between the Presidency and the state governors.
Section 77 of the report introduced a new VAT distribution arrangement, distributing 50% of the revenue generated to states, equally. It added that 20% is based on population while 30% will be based on consumption.
The focus is on the actual location of consumption, regardless of where tax returns are submitted. Furthermore, local governments will retain 35% of the revenue under a similar arrangement.
Furthermore, the committee extended the timeframe for issuing Taxpayer Identification Numbers from two to five working days to accommodate possible administrative challenges. Also, officials must communicate any refusal to issue a TIN to the applicant.
Additionally, it scrapped the previously proposed staggered reduction of the corporate income tax rate. Therefore, companies will continue to pay 30% tax, while those in priority sectors will enjoy a reduced rate of 25% for five years.
Development on other allocations aside VAT
The revised bill also extends the beneficiaries of the Development Levy. It stated that the Tertiary Education Trust Fund will receive 50% and the Nigerian Education Loan Fund will get 3%.
In addition, the National Information Technology Development Fund will receive 5%, while the National Agency for Science and Engineering Infrastructure will receive 10%.
Besides, the Defence Infrastructure Fund will receive 10%, the Nigeria Police Trust Fund and the National Sports Development Fund get 5% each.
Furthermore, the Social Security Fund and the National Board for Technological Incubation will get 10% each. Moreover, the National Cybersecurity Fund will get 1%.
The bills are anticipated to be read for the third and final time before being enacted into law next week.
