The House of Representatives has approved a new Value Added Tax (VAT) sharing formula, increasing the allocation to states and local government councils. Under the revised structure, states will now receive 55% of VAT revenue, while local governments will get 35%.
This decision was made following the adoption of a report by the House Committee on Finance, which reviewed four tax bills submitted by President Bola Tinubu in October 2024.
The approval came after an extensive review process, which included a public hearing held between February 26 and February 28, 2025. Presenting the committee’s findings, Chairman Abiodun Faleke emphasized that the revisions aimed to address long-standing concerns over tax distribution and administration. During a session presided over by Speaker Tajudeen Abbas, the House deliberated on the recommendations and adopted the report clause by clause.
One of the most notable changes is the restructured VAT distribution framework. According to the new formula, 50% of the VAT revenue allocated to states will be shared equally, 20% will be distributed based on population size, and the remaining 30% will be allocated based on consumption levels. The same approach will be applied to local government allocations. This adjustment prioritizes the actual place of consumption over where tax returns are filed, ensuring a more equitable distribution of resources.
In addition to the VAT restructuring, the committee introduced several tax administration reforms. The deadline for issuing Taxpayer Identification Numbers (TINs) has been extended from two to five working days to allow for administrative processing. Any refusal to issue a TIN must now be justified and formally communicated to the applicant. The timeline for companies ceasing operations to file their final tax returns has also been reduced from six months to three months to prevent revenue losses. Furthermore, tax allocation will now be determined based on actual taxable supply consumption, a move designed to ensure fairer distribution, particularly in regions with a high concentration of company headquarters.
The Federal Inland Revenue Service (FIRS) will implement new regulations to enhance tax enforcement, while additional oversight measures have been introduced to strengthen fiscal responsibility. Under the revised laws, any tax remission granted by the President or a state governor must receive prior approval from the National Assembly or the respective state legislature. Similarly, any tax exemptions granted at the presidential level will require legislative endorsement.
To ensure compliance among government entities, the Accountant General’s Office has been authorized to deduct unremitted taxes from Ministries, Departments, and Agencies (MDAs) at the source, subject to National Assembly approval. The FIRS Board will also undergo structural changes, with six Executive Directors appointed on a rotational basis from each geopolitical zone. Additionally, each state and the Federal Capital Territory (FCT) will have a representative on the board to uphold federal character principles.
The revised tax framework also introduces new funding mechanisms. The FIRS will receive a fixed 4% cost of collection, subject to National Assembly appropriation. The Tax Appeal Tribunal, which previously relied on FIRS funding, will now be financed directly from the Consolidated Revenue Fund to ensure judicial independence and neutrality.
Under the Nigeria Tax Bill, companies applying for capital allowances under priority sector incentives must obtain a Certificate of Acceptance from the Industrial Inspectorate Department of the Federal Ministry of Industry, Trade, and Investment. The bill also maintains the corporate income tax rate at 30%, reversing an earlier proposal for a staggered reduction. However, businesses operating in priority sectors will benefit from a reduced tax rate of 25% for a five-year period.
Additionally, the Development Levy framework has been revised to expand the distribution of funds across various sectors. The Tertiary Education Trust Fund will receive the largest share at 50%, while the Nigerian Education Loan Fund, National Information Technology Development Fund, and National Agency for Science and Engineering Infrastructure will receive smaller allocations. Other beneficiaries include the Defence Infrastructure Fund, Nigeria Police Trust Fund, National Sports Development Fund, and the Social Security Fund, among others.
The newly approved tax bills are expected to be presented for a third and final reading before being passed into law in the coming week.
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