The Nigerian Senate has passed all four of President Bola Tinubu’s proposed tax reform bills, marking a significant overhaul of the country’s fiscal framework. These bills aim to modernize tax administration, enhance revenue collection, and ensure a more equitable distribution of tax proceeds across federal, state, and local governments.
Key Provisions of the Newly Passed Tax Bills
- Establishment of the Nigeria Revenue Service (NRS):
The Federal Inland Revenue Service (FIRS) will be replaced by the Nigeria Revenue Service (NRS), which will serve as the central authority for federal tax collection.
The NRS will be governed by a board comprising a chairperson appointed by the President, an executive vice chairperson (subject to Senate confirmation), and six executive directors representing each geopolitical zone on a rotational basis.
- Value Added Tax (VAT) Distribution Adjustments:
The VAT rate remains at 7.5%; however, the distribution formula has been revised:
Federal Government: Reduced from 15% to 10%
States: Increased from 50% to 55%
Local Governments: Remains at 35%
For state allocations:
50% shared equally among all states
20% based on population
30% based on the place of consumption
For local governments:
70% shared equally
30% based on population
- Introduction of a 4% Development Levy:
A new 4% development levy has been introduced to fund key national agencies, including:
Tertiary Education Trust Fund (TETFUND) – 50%
Nigerian Education Loan Fund (NELFUND) – 15%
National Information Technology Development Agency (NITDA) – 10%
National Agency for Science and Engineering Infrastructure (NASENI) – 10%
National Cybersecurity Fund – 5%
Defence Security Fund – 10%
- Establishment of the Tax Appeal Tribunal and Tax Ombud Office:
A Tax Appeal Tribunal will be established to handle disputes related to federal and state tax laws, aiming to enhance efficiency and credibility in tax dispute resolution.
An Office of the Tax Ombud will be created to address taxpayer grievances and promote fairness in tax administration.
- Enhanced Penalties for Non-Compliance:
Stricter penalties have been introduced for tax non-compliance, including:
Failure to register: ₦100,000 in the first month, ₦50,000 for each subsequent month
Failure to file returns: ₦200,000 in the first month, ₦50,000 for each subsequent month
Failure to keep books: ₦10,000 for individuals, ₦100,000 for companies
Failure to remit tax deducted at source: Up to three years imprisonment upon conviction
Comparison with Previous Versions
The Senate’s version of the tax reform bills incorporates several significant changes from the versions previously passed by the House of Representatives:
VAT Distribution: The Senate adjusted the VAT sharing formula, reducing the federal government’s share and increasing the states’ share, to promote greater fiscal federalism.
Development Levy: The Senate introduced a 4% development levy to ensure sustained funding for critical national agencies, a provision not present in the earlier House version.
Administrative Reforms: The establishment of the NRS, Tax Appeal Tribunal, and Tax Ombud Office reflects a comprehensive approach to modernizing tax administration and dispute resolution mechanisms.
These harmonized bills are now set to be transmitted to President Tinubu for assent, signaling a significant shift in Nigeria’s tax policy landscape.
