In a significant fiscal shift set to enhance state revenues and reshape Nigeria’s tax framework, the Senate has passed two of four critical tax reform bills. These include a new Value Added Tax (VAT) revenue-sharing formula, though the VAT rate remains unchanged at 7.5%.
Under the revised formula, the Federal Government’s share of VAT will drop to 10%, while states and the Federal Capital Territory will receive 55%, and local governments 35%. This marks a departure from the current allocation of 15% to the Federal Government, 50% to states, and 35% to local governments.
Senate President Godswill Akpabio announced that the remaining two bills will be debated in plenary today. The two approved bills—the Nigeria Revenue Service (Establishment) Bill, 2025 and the Joint Revenue Board (Establishment) Bill, 2025—are part of a broader effort to modernize the tax system and now await approval from the House of Representatives and President Bola Ahmed Tinubu’s assent.
These reforms aim to increase revenue, ensure transparency, and promote fair distribution. A key update is the redefinition of “derivation” to reflect the “place of consumption,” meaning VAT will now be distributed based on where goods and services are consumed, rather than where they are produced or sold.
The new VAT allocation formula for states is 50% by equality, 20% by population, and 30% based on consumption. Local governments will receive their share with 30% allocated equally and 70% according to population.
Additionally, the Senate halved the tax collection fee for revenue agencies from 4% to 2%, particularly for oil-related revenues, following concerns raised by Senator Seriake Dickson over excessive agency earnings.
A notable structural change in the Revenue Service Bill places the President as Chairman of the Service’s Board, while an Executive Vice Chairman—subject to Senate approval—will lead operations. The bill also mandates six Executive Directors, one from each geopolitical zone, with appointments rotated to avoid regional dominance.
Clause 4 of the bill expands the Service’s scope to include corporate tax assessment, collaboration with ministries for tax modernization, and authority to trace, freeze, or seize assets linked to tax evasion. Clause 13(2) requires the Board Secretary to be a qualified financial or legal expert, not below the Deputy Director level, and stipulates annual reports be filed within three months of the fiscal year’s end.
The Senate also introduced strict penalties for tax noncompliance: failure to register will incur a N100,000 fine with a monthly N50,000 penalty; late return filings attract N200,000 initially and N50,000 monthly thereafter. Individuals who fail to keep proper records will face N10,000 fines, and companies N100,000. Failure to remit taxes may result in fines or imprisonment of up to three years.
Senate President Akpabio commended the Finance Committee and senior senators for their collaborative approach in passing the bills. He rejected accusations of regional bias, emphasizing that the reforms are designed to serve all Nigerians fairly.
With these developments, Nigeria moves closer to a transparent, efficient, and equitable tax system that empowers subnational governments and aligns with contemporary economic practices.
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