VAT remains 7.5% as reps adopt tax reform bills

The House of Representatives on Thursday adopted four tax reform bills, maintaining the current Value Added Tax (VAT) rate at 7.5% while making significant amendments to Nigeria’s tax structure. The adoption followed a clause-by-clause consideration at the Committee of the Whole, chaired by Speaker Abbas Tajudeen. The four bills adopted by the House aim to […]

The House of Representatives on Thursday adopted four tax reform bills, maintaining the current Value Added Tax (VAT) rate at 7.5% while making significant amendments to Nigeria’s tax structure.

The adoption followed a clause-by-clause consideration at the Committee of the Whole, chaired by Speaker Abbas Tajudeen.

The four bills adopted by the House aim to streamline tax administration and improve revenue generation.

They include: A bill to regulate revenue assessment, collection, and accountability across federal, state, and local governments.

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A bill to replace the Federal Inland Revenue Service (FIRS) with the Nigeria Revenue Service (NRS).

A bill establishing the Joint Revenue Board, the Tax Appeal Tribunal and the Office of the Tax Ombud to resolve tax disputes.

A bill consolidating various tax laws into the Nigeria Tax Act, covering taxation of income, transactions, and financial instruments.

The bills are now set for a third reading at the next legislative sitting.

Daily Trust reports that most of the contentious clauses that raised tension were addressed by the committee that handled the reports, thus, making the consideration and adoption of the reports almost seamless.

 

VAT distribution formula and 7.5% rates

Key among the clauses considered and adopted include VAT distribution formula based on 50% equality; 20% population and 30% consumption as earlier proposed by the Nigerian Governors’ Forum (NGF).

The House rejected the proposal for incremental review of VAT rates and approved that the current 7.5% VAT rate be sustained.

The committee in Section 77 stated that a new basis for the distribution of VAT allocation for states and local governments has been introduced.

It reads, “Section 77 – Distribution of Revenue: For VAT purposes, a new basis for the distribution of the 55% and 35% respectively for state and local government allocation has been introduced, thus:

“For states: 50% to be distributed equally, 20% to be distributed based on population, and 30% to be based on consumption. Emphasis has also been placed on the actual place of consumption irrespective of where the returns are filed”.

“Section 146 – VAT Rate: The VAT rate was amended to retain the current 7.5% as opposed to proposed staggered increase to 15% by 2030.

 

Ecclesiastical institutions expunged

A controversial provision referring to “ecclesiastical” institutions was amended, replacing the term with “religious” to ensure broader inclusivity.

 

Sustained funding for TETFUND, NASENI, TETFund

The House reinforced the continuous financing of the Tertiary Education Trust Fund (TETFund), the National Agency for Science and Engineering Infrastructure (NASENI), and the National Information Technology Development Agency (NITDA) from development levies.

In a move to clarify inheritance tax, lawmakers determined that inherited assets before distribution would not be subjected to taxation.

Push for federal character in composition of the governing board

In section 7 of the bill, the House approved amendment to the composition of the services’ board to include six executive directors, to be appointed by the president, one from each geo-political zone, on a rotational basis among the states in the zone in alphabetical order, and subject to the confirmation of the National Assembly.

In addition to the above, the House also approved the presidential appointment of one member per state and the FCT to sit on the board of the service, to ensure federal character representation on the governing board.

 

Reforming tax collection and oversight

The House approves the clause that ensures the independence of the Tax Ombud by expunging provisions for external gifts and grants, making it solely reliant on the Consolidated Revenue Fund with National Assembly approval.

Similarly, the Tax Appeal Tribunal will now be funded through the national budget instead of relying on FIRS.

 

Exemptions and adjustments for businesses and individuals

The House approved that the timeline for issuing taxpayer identification numbers (TINs) be extended from two to five working days and that any refusal by the tax authority to issue a TIN must be explained in writing.

It approved that companies winding up must now file their tax returns within three months instead of six, preventing potential revenue loss.

 

VAT attribution based on consumption

The House approved that VAT attribution will now be based on the actual place of consumption, irrespective of where returns are filed, ensuring fairness in revenue allocation.

Other adjustments made by the House include raising the financial threshold for bank-reported transactions from N25 million to N50 million for individuals and from N100 million to N250 million for corporate entities.

Also, the accreditation process for tax agents was tightened, ensuring only qualified professionals can act on behalf of taxpayers.

 

Curtail president’s power on tax waiver

The lawmakers amended provisions in the tax bills limiting executive discretion in granting tax waivers to companies.

The president must now obtain National Assembly approval before granting income tax exemptions to companies or individuals.

Similarly, the Accountant-General must receive a resolution from the National Assembly before deducting unremitted revenue from ministries, departments and agencies (MDAs).

 

Military exempted from PAYE

The House introduced a new clause in the bill to exempt military personnel from Pay-As-You-Earn (PAYE) income tax.

Other adjustments by the House include the turnover threshold of small businesses from N50 million to N100 million while maintaining a fixed asset cap of N250 million.

 

Reduction in corporate tax

Companies engaged in petroleum operations will now pay corporate income tax at 30% on capital gains instead of the previous 85% Petroleum Profits Tax rate.

Meanwhile, the Excise Duties and Digital Economy Regulation Excise duty provisions were deleted, particularly those related to telecoms and forex transactions, as they were seen as potentially inflationary and job-threatening.

Virtual Assets Service Providers (VASPs), such as cryptocurrency platforms, now face stricter penalties, including license revocation and financial penalties for non-compliance.

 

Agricultural businesses exempted from taxes

The House approved Section 164, which offered extension of tax exemption to specific agricultural businesses in the first five years of commencement. The specific agricultural sub-sectors include livestock, forestry, dairy, animal feed and cocoa processing.

 

Adopted bills reflect national consensus – Speaker

The Speaker of the House of Representatives, Tajudeen Abbas has commended the Ad-hoc Committee on Tax Reform for its extensive work on the Nigerian Tax Bills, emphasising that the reports submitted reflect a national consensus on tax reforms.

Speaking during the consideration of the bills, Speaker Abbas recalled a recent meeting where all 36 committee members, representing each state, along with six geopolitical zonal caucus leaders, two regional leaders, and tax law experts, reviewed the report in detail.

According to him, after thorough scrutiny and questioning, every member of the committee expressed satisfaction with the work done.

 

We have given proposed legislations human face – Doguwa

Meanwhile, Leader of the Northern Members’ Caucus in the House of Representatives, Hon. Alhassan Ado Doguwa has said that the passage of the four Tax Reform Bills by the House was done after diligent scrutiny of the pieces of legislation submitted by President Bola Tinubu to the National Assembly on October 3, 2024.

Speaking exclusively to Daily Trust after the passage of the bills, Hon. Doguwa said: “We took into cognisance all the concerns raised by various sections of the Nigerian people, especially with respect to some contentious sections such as the earlier proposition for phased withdrawal of funding for some agencies that are of critical importance like the Tertiary Education Trust Fund (TETFund), the National Information Technology Development Agency (NITDA) and the National Agency for Science and Engineering Infrastructure (NASENI).

“We also addressed concerns of Nigerians about their religious sensitivities relating to some sections of the bills, including the issues of possible taxation of inheritance, the earlier proposed increases to value added tax (VAT), among others.

“In effect, I want to assure you that we have given these pieces of legislation a human face, to the extent that once our positions are concurred by the Senate and are assented to by the President, Nigerians can comfortably embrace these laws without the numerous fears that were initially expressed”, he said.