House of Representatives Approves Tax Reform Bills: Key Changes to VAT Sharing Formula

The Nigerian House of Representatives has approved a series of tax reform bills aimed at overhauling the nation's tax system. These reforms are part of President Bola Tinubu's efforts to enhance revenue generation and improve fiscal efficiency.

Value Added Tax (VAT) Rate Retained

Contrary to earlier proposals to increase the VAT rate to 12.5% by 2026, the House has decided to maintain the current VAT rate at 7.5%. This decision reflects lawmakers' sensitivity to the potential economic impact of a VAT hike on consumers and businesses.

Revised VAT Revenue Sharing Formula

The approved reforms introduce a new formula for distributing VAT revenues among the three tiers of government:

Federal Government: 10%

State Governments and the Federal Capital Territory: 55%

Local Governments: 35%

Additionally, the allocation of VAT revenues to states is now based on the following criteria:

Equality: 50%

Population: 20%

Consumption: 30%

This structure aims to balance equity and efficiency in resource distribution.

Exclusion of Inheritance Tax

The House has rejected the proposed reintroduction of inheritance tax, ensuring that inheritance funds remain exempt from taxation. This decision aligns with public sentiment and addresses concerns about double taxation on inherited assets.

Next Steps

For these reforms to take effect, they require approval from the Senate and the President's assent. The legislative process is ongoing, and stakeholders are closely monitoring developments.

These reforms represent a significant step toward restructuring Nigeria's tax system to enhance revenue generation while considering the economic well-being of its citizens.