Reps reject VAT increase, adopt new sharing formular for states
By Ndukaku Ihe
Nigerians may heave a sigh of relief as the House of Representatives has rejected the proposed increase of the Value Added Tax ( VAT) from the current 7.5 percent to 15 percent between 2025 and 2030.
The development was part of the recommendations of the Special Committee of the Green chamber on the tax reform bills, which were transmitted to the National Assembly by President Bola Tinubu, last October.
The House also approved a new VAT sharing formular for the three tiers of government. According to the committee proposal, which was adopted by the Committee of the Whole, the sharing of VAT to states will now be on the basis of equality – 50%; population – 20% and consumption – 30%.
The Green chamber, after passing the four tax reform bills for second reading on February 12 had committed it to a special committee for further legislative action.
The bills, which included The Joint Revenue Board of Nigeria (Establishment) Bill, 2024, The Nigeria Revenue Service (Establishment) Bill, 2024, The Nigeria Tax Administration Bill, 2024 -and the Nigeria Tax Bill, 2024, had been stalled in the Green chamber for four months, due to disagreements on some contentious clauses.
The contentious clauses are sections 146 of the Nigeria Tax Bill provides for an increase in VAT from the current 7.5 percent to 10 percent in 2025, 12 . 5 percent in 2026- 2029 and 15 percent in 2030, and Section 77 of the Nigeria Tax Administration Bill( NTAB).
Section 77 of the NTAB provides that “notwithstanding any formula that may be prescribed by any other law, the net revenue accruing by virtue of the operation of chapter six of the Nigeria Tax Act shall be distributed as follows —
(a) 10% to the Federal Government;
(b) 55% to the State Governments and the Federal Capital Territory; and
(c) 35% to the Local Governments.
provided that 60% of the amount standing to the credit of states and local governments shall be distributed among them on the basis of derivation.
The extant Act provides that VAT revenue shall be distributed as “follows-
(a) 15% to the Federal Government;
(b) 50% to the State Governments and the Federal Capital Territory, Abuja; and
(c) 35% to the Local Governments:
Provided that the principle of derivation of not less than 20% shall be reflected in the distribution of the allocation amongst states and Local Governments as specified in paragraphs (b) and (c) of this section.”
However, the committee’s recommendation which was adopted unanimously by the House, provides that “notwithstanding any formula that may be prescribed by any other law, the net revenue accruing by virtue of the operation of chapter six of the Nigeria Tax Act shall be distributed as follows —
(a) 10% to the Federal Government;
(b) 55% to the State Governments and the Federal Capital Territory; and
(c) 35% to the Local Governments.
(2) The amount of the VAT revenue standing to the credit of states and local governments shall be distributed among them on the following basis: Equally – 50%; population – 20%; Consumption – 30%.
“For the purpose of this section, consumption is determined by the place of consumption, irrespective of where the return is filed.”
Similarly, the House also approved the Committee’s report ” to remove the staggered reduction in companies income tax rate from 30% to 27.5% in 2025 and 25% in 2026. Per the recommendation by the Nigerian Governors’ Forum, the tax rate of companies other than small companies remains 30%.
“The Committee further recommends that the tax rate of companies in the priority sector should be reduced to 25% during the priority period of 5 years.
According to the committee report, amendments were made to the proposed Section 57 of the Nigeria Tax Bill ” to emphasise that only multinationals with a group aggregate turnover of at least £750m or its equivalent are subject to the global minimum tax, in line with global best practices.
“The section was also amended to increase the qualifying threshold for minimum tax for resident from a turnover of ₦20 billion to ₦50 billion, as well as exclude free zone entities which export at least 75% of its goods and services, from the minimum tax regime.
“Furthermore, the net profit of life assurance companies to be considered for the minimum tax has been amended to exclude gross premium and investment income for policyholders.”
According to the committee, “the categorization of companies has been reviewed upward from a turnover of ₦50m to ₦100m, while maintaining the fixed assets value of not more than ₦250m.
“This is intended to ease businesses and fill the vacuum which will be created by the scrapped medium businesses currently provided for under the Companies Income Tax Act.”
Furthermore, the proposed Section 121 of the NTB, amended to remove “imprisonment as a penalty for offences in respect of which penalties have not been specified, on the ground of excessiveness, while retaining the monetary administrative penalty.”
The chairman, House Committee on Finance, Aboidun Faleke, who chaired the Special Committee, in an interview with journalists, said that the reform bills will engender tax laws that are generally acceptable to the populace.
Faleke said, “these bills took three full days of public hearing, we took memoranda from more than 80 critical stakeholders and after the three days, we resorted to a retreat for eight days, debating all the clauses for each of the bills.
“I am glad that members of the house saw that we had done a thorough job and they have approved all our recommendation.”
