House of Representatives

The House of Representatives has taken a step closer to passing the four tax reform bills, which are now set to be read for the third time before their eventual passage.

The bills, which include the Nigeria Revenue Service (Establishment) Bill, the Nigeria Tax Bill, the Nigeria Tax Administration Bill, and the Joint Revenue Board (Establishment) Bill, were presented by President Bola Tinubu to the parliament on October 8, 2024.

Meanwhile, on Thursday, after extensive deliberations and revisions, the bills are now set for a third reading before eventual passage into law.

The legislative process faced initial delays due to disagreements among lawmakers, particularly concerning the Nigeria Tax Administration Bill.

It would be recalled that the northern leaders and the Nigerian Governors Forum raised objections, prompting further scrutiny and adjustments.

However, after a six-day retreat and a public hearing, the House Committee on Finance, led by Chairman James Abiodun Faleke, resolved the contentious issues and presented a comprehensive report for consideration.

Meanwhile, key recommendations from the committee include the appointment of six Executive Directors for the Nigeria Revenue Service, to be selected by the President, alongside one representative from each of the 36 states to ensure equitable representation.

The committee also addressed concerns about the definition of “tax,” which some feared could encroach on the revenue collection functions of other agencies like the Nigeria Customs Service.

One of the most debated issues was the distribution of Value-Added Tax (VAT) revenue.

The House approved a new distribution formula, allocating 55% to states and 35% to local governments. Under the new framework, 50% of VAT revenue would be distributed equally, 20% based on population, and 30% based on consumption.

The committee emphasised that VAT collection and distribution should focus on the actual place of consumption, regardless of where the tax returns are filed or the company’s headquarters is located.

To address revenue leakage, the House approved stringent measures to ensure that entities collecting VAT on behalf of the government remit the full amount.

This comes in response to reports that some supermarkets remit less than 10% of the VAT they collect.

Meanwhile, the committee recommended that the President seek National Assembly approval before exempting any person or class of income from taxation.

The Accountant-General of the Federation will also require a resolution from the National Assembly to deduct unremitted revenue from Ministries, Departments, and Agencies (MDAs).

However, the committee proposed replacing the term “ecclesiastical” with “religious” in the Nigeria Tax Bill, as the former is closely associated with Christianity.

The committee also rejected the reintroduction of inheritance tax, citing its conflict with Sharia and Customary Laws in the North and South, respectively.

The House considered reducing the VAT rate to 5% or maintaining the current rate of 7.5%.

It also recommended reinstating contributions to the National Agency for Science and Engineering Infrastructure (NASENI) and the National Information Technology Development Agency (NITDA), ensuring continuous funding from the Development Levy.

Other notable recommendations include the reinstatement of the Certificate of Acceptance of Fixed Assets (CAFA) for claiming capital allowances and the introduction of a 1.5% service charge for companies operating in priority sectors, based on the economic development tax credit.

The committee also clarified that oil and gas royalties will remain under the jurisdiction of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), while the Federal Inland Revenue Service (FIRS) will focus on operational matters.

The exemption and incentive clauses of the Nigeria Export Processing Zones Authority (NEPZA) and Oil and Gas Free Zones Authority (OGFZA) Acts were deleted, reverting to current provisions and practices.

Faleke explained that the Committee proposed amendments to eliminate the staggered reduction in corporate income tax, which was set to drop from 30% to 27.5% in 2025 and 25% in 2026.

Based on recommendations from the Nigerian Governors’ Forum, the tax rate for companies — excluding small businesses —would remain at 30%.

However, companies in priority sectors would benefit from a reduced 25% tax rate for a five-year period.

Regarding tax collection, Faleke stated that taxes should be paid in the currency in which they are assessed.

Other amendments include: Ensuring that only multinationals with a group aggregate turnover of at least £750million (or its equivalent) are subject to the global minimum tax, aligning with global standards.

“Raising the minimum tax qualifying threshold for resident companies from N20billion to N50billion.

“Exempting free zone entities that export at least 75% of their goods and services from the minimum tax regime.

“Adjusting the minimum tax calculation for life assurance companies to exclude gross premium and investment income for policyholders.”

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