The House of Representatives, on Thursday, approved a new Value Added Tax sharing formula, allocating 55% to states and 35% to local government councils.
This decision followed the adoption of a report by the House Committee on Finance on four tax bills transmitted to the National Assembly by President Bola Tinubu in October 2024.
Presenting the report on Thursday, the chairman of the committee, Abiodun Faleke, summarised the extensive review process, which followed a public hearing held from February 26 to February 28, 2025.
The report was considered clause by clause and adopted in a session presided over by the Speaker, Tajudeen Abbas, on Thursday.
The committee made 19 key recommendations under the Nigerian Tax Administration Bill, including a revised VAT distribution framework that had been a contentious issue between state governors and the Presidency.
Revised VAT sharing formula
Section 77 of the report introduces a new VAT distribution structure.
For states, 50% of the revenue is to be distributed equally, 20% based on population, and 30% based on consumption.
The emphasis is placed on the actual place of consumption, regardless of where tax returns are filed.
Local governments will receive 35% of VAT revenue under a similar formula.
Additionally, the timeline for issuing Taxpayer Identification Numbers has been extended from two to five working days to accommodate possible administrative challenges.
Any refusal to issue a TIN must be justified and communicated to the applicant.
Corporate tax filing
The timeframe for companies ceasing operations to file tax returns has been reduced from six months to three months to mitigate revenue losses.
The committee also recommended that taxable supply consumption should determine tax allocation, ensuring fairness in regions where company headquarters are concentrated.
On fiscalisation, the Federal Inland Revenue Service will establish further regulations to enforce the newly introduced system.
Additionally, Section 74 mandates that any tax remission by the President or a governor must receive approval from the National Assembly or respective state Houses of Assembly.
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