The Nigerian Senate has passed all four tax reform bills proposed by President Bola Tinubu, marking a major step toward reshaping the country’s tax system. The new legislation is designed to modernise tax administration, boost revenue collection, and ensure a more balanced distribution of tax proceeds among the federal, state, and local governments.
Highlights of the New Tax Reform Bills
- Creation of the Nigeria Revenue Service (NRS):
The Federal Inland Revenue Service (FIRS) will be replaced by the newly established Nigeria Revenue Service (NRS), which will serve as the primary body for federal tax administration.
The NRS will be overseen by a governing board made up of a chairperson appointed by the President, an executive vice chairperson subject to Senate confirmation, and six executive directors representing Nigeria’s geopolitical zones on a rotational basis. - Revised VAT Distribution Formula:
While the VAT rate remains unchanged at 7.5%, the sharing formula has been adjusted:- Federal Government’s share drops from 15% to 10%
- States’ share increases from 50% to 55%
- Local governments retain 35%
- 50% shared equally
- 20% based on population
- 30% based on the place of consumption
- 70% shared equally
- 30% based on population
- Introduction of a 4% Development Levy:
A new levy has been introduced to fund key national agencies:- TETFUND – 50%
- NELFUND – 15%
- NITDA – 10%
- NASENI – 10%
- National Cybersecurity Fund – 5%
- Defence Security Fund – 10%
- Tax Dispute and Grievance Resolution:
The reforms also include the creation of a Tax Appeal Tribunal to handle tax-related disputes at both federal and state levels.
Additionally, an independent Office of the Tax Ombud will be set up to address taxpayer complaints and promote fairness in tax administration. - Stricter Penalties for Non-Compliance:
The bills introduce tougher penalties for tax default:- Failure to register: ₦100,000 in the first month, ₦50,000 for each additional month
- Failure to file returns: ₦200,000 in the first month, ₦50,000 monthly thereafter
- Failure to maintain proper records: ₦10,000 for individuals, ₦100,000 for companies
- Failure to remit taxes withheld: Punishable by up to three years imprisonment upon conviction
Key Changes from Earlier House Versions
Compared to the versions passed by the House of Representatives, the Senate made several notable changes:
- VAT Distribution: The Senate adjusted the revenue sharing formula to reduce the federal government’s share and increase that of the states, strengthening fiscal decentralisation.
- Development Levy: The new 4% levy for key institutions was introduced by the Senate and wasn’t part of the earlier House drafts.
- Administrative Reforms: The establishment of the NRS, the Tax Appeal Tribunal, and the Tax Ombud reflects a more thorough restructuring of the tax system.
With Senate approval secured, the harmonised tax bills are now awaiting President Tinubu’s assent, signaling a significant shift in Nigeria’s approach to taxation and public finance.
While these reforms are a positive step, many observers argue that genuine transformation must go beyond legislation. For the treasury and other public institutions to function effectively and free from corruption, governance structures must be strengthened. This involves defining clear roles, aligning positions with relevant expertise, streamlining bureaucratic processes, and making merit-based appointments the norm. Such reforms are critical to building a transparent, efficient, and accountable public service system.
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