Tax Reform: House of Reps Don Approve New VAT Sharing Formula for States

Tax Reform: House of Reps Don Approve New VAT Sharing Formula for States

Di House of Representatives don approve new Value Added Tax (VAT) sharing formula wey go give 55% to states and 35% to local government councils.

Dem make dis decision after dem adopt di report wey di House Committee on Finance submit about four tax bills wey President Bola Tinubu send go di National Assembly for October 2024.

Di chairman of di committee, Abiodun Faleke, present di report on Thursday, where e summarize di long review process wey dem follow, including di public hearing wey dem hold from February 26 to February 28, 2025.

Di House consider di report clause by clause before dem finally adopt am for di session wey Speaker Tajudeen Abbas preside over.

Di committee make 19 important recommendations under di Nigerian Tax Administration Bill, including di new VAT sharing formula wey don cause plenty argument between state governors and di Presidency.

For Section 77 of di report, dem introduce new VAT distribution framework:

  • States go get 50% of di VAT revenue wey dem go share equally, 20% go base on population, and 30% go base on consumption. Dem go focus on di exact place wey people consume di goods or services, no be where di tax return dey filed.
  • Local governments go receive 35% of di VAT revenue using di same formula.
  • Di time wey dem dey take issue Taxpayer Identification Number (TIN) don extend from two to five working days to allow for any administrative wahala. If dem no wan issue TIN, dem must explain why and notify di applicant.
  • Companies wey wan close down go get only three months to file tax returns instead of six months, to stop revenue loss.
  • Tax allocation go base on where di goods and services dem dey consume to make di system fair, especially for places wey plenty company headquarters dey.
  • Federal Inland Revenue Service (FIRS) go create more regulations to enforce di new tax system.
  • Any tax remission wey President or Governor wan do must get approval from National Assembly or State Assembly before dem fit implement am.
  • Di Accountant General office go fit deduct unpaid taxes from Ministries, Departments, and Agencies (MDAs) directly before dem release funds, but dem go need National Assembly approval.
  • FIRS go get six Executive Directors wey dem go appoint rotationally from each geopolitical zone. Every state and di Federal Capital Territory go also get representative to balance federal character.
  • FIRS collection cost go fix at 4%, and di National Assembly go approve am.
  • Tax Appeal Tribunal go dey funded from Consolidated Revenue Fund instead of depending on FIRS money, to make sure say dem dey neutral.
  • Companies wey dey enjoy priority sector incentives must get Certificate of Acceptance before dem fit claim capital allowances. Di Industrial Inspectorate Department for di Federal Ministry of Industry, Trade, and Investment go handle di certification.
  • Di plan to reduce corporate income tax rate small small don cancel. Instead, companies go still pay 30% tax, while companies wey dey priority sectors go pay 25% for five years.
  • Di Development Levy beneficiaries don increase:
    • Tertiary Education Trust Fund – 50%
    • Nigerian Education Loan Fund – 3%
    • National Information Technology Development Fund – 5%
    • National Agency for Science and Engineering Infrastructure – 10%
    • Defence Infrastructure Fund – 10%
    • Nigeria Police Trust Fund – 5%
    • National Sports Development Fund – 5%
    • Social Security Fund – 10%
    • National Board for Technological Incubation – 10%
    • National Cybersecurity Fund – 1%

Di bills go face third and final reading next week before dem go finally pass am into law.

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