......replaces ‘derivation’ with ‘place of consumption’ in VAT sharing formula
......approves new sharing formula for VAT, proposes 10% for FG, 55%, for States and 35% for LGs
The Senate has passed two out of the four Tax Reform Bills forwarded to it for consideration along with the House of Representatives by President Bola Tinubu in October last year.
The two bills were read the third time and passed, just as it plans to pass the other two today.
The passage of the two bills were sequel to the presentation and consideration of a report by the Committee, Senate Committee on Finance, SenatormSani Musa, APC, Niger East.
The four (4) bills include the Nigeria Tax Bill (NTB) 2024, Nigeria Tax Administration Bill (NTAB), Nigeria Revenue Service (Establishment) Bill (NRSEB) and Joint Revenue Board (Establishment) Bill (IRBEB).
However only two of the four bills were passed at the day's plenary. The bills are the Nigeria Revenue Service (Establishment) Bill (NRSEB) and the bill for an act to provide for the assessment, collection of, and accounting for revenue accruing to the federation, federal, states and local governments; prescribe the powers and functions of tax authorities, and for related matters which represents the Nigeria Tax Administration Bill (NTAB).
With the passage of the bill on establishment of Nigeria Revenue Service , proposed to replace the Federal Inland Revenue Service ( FIRS), it has recommended for the appointment of an Executive Vice Chairman to head revenue agency administratively while its board will be headed by a non - executive Chairman .
The passed bill also replaces derivation with place of consumption in sharing of Value Added Tax ( VAT) by the Federal Government just as it approved new sharing formula for VAT by proposing 10%, for FG, 55%, for States and 35% for Local Government Councils .
Recall that the four tax reform bills forwarded to both chambers of the National Assembly by President Tinubu in October last year for expeditious consideration are the Joint Revenue Board (Establishment) Bill, 2025, the Nigeria Revenue Service (Establishment) Bill, 2025, the Nigeria Tax Administration Bill, and the Nigeria Tax Bill.
The President of the Senate, Senator Godswill Akpabio disclosed that the remaining two bills will be considered in plenary today. The Senate had earlier spent close to 2 hours behind closed doors. Reconvening after the closed door, Sen Musa presented the committee's findings and recommendations that could reshape the country’s fiscal structure.
He explained that the committee convened multiple times, invited and held consultations with almost 64 organisations including Civil Society Organisations (CSOS), the attorney-general of the federation and minister of justice, the solicitor-general and permanent secretary of the ministry of justice, the executive chairman of the Federal Inland Revenue Service (FIRS), the executive chairman of the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC), and the chairman of the Presidential Committee on Fiscal Policy and Tax Reforms (PCFPTR). These engagements enabled direct discussions on the contentious and controversial provisions of the bills.
The findings and recommendations, Senator Musa raised concerns over the proposed 4% development levy meant to replace earmarked taxes that currently fund key agencies such as the Tertiary Education Trust Fund (TETFUND), the National Information Technology Development Agency (NITDA), and the National Agency for Science and Engineering Infrastructure (NASENI). “These agencies of government are essential for human capital and overall economic development of the country. Phasing out their funding can lead to stagnation in education and the country losing out in technological evolutions and advancement,” he cautioned.
Though they have scaled through 3rd reading, the bills will need concurrence with the House of Representatives and assent by President Bola Tinubu to make them laws of the Federal Republic of Nigeria.
The lawmakers approved them following the consideration and adoption of recommendations contained in the Tax Reform Bills report which was submitted by its Committee on Finance led by Sen. Sani Musa on Tuesday.
The bills seek to reform Nigeria’s tax framework, strengthen institutions, and enhance accountability and compliance.
Among other things, the changes in the Tax Administration Act provide clarity to the controversial term “derivation”—which refers to revenue allocation based on where resources are produced—with “place of consumption,” meaning taxes will be shared based on where goods and services are actually used.
Under the proposed new law, VAT revenue would be distributed as follows: 10% to the Federal Government, 55% to the States and the Federal Capital Territory, and 35% to Local Governments.
Among the states, the allocation would be based on equality (50%), population (20%), and place of consumption, that is, location of consumer at the time of consumption)(30%). For Local Governments, 70% of the total allocation will be distributed using equality (30%) and the remainder based on population.
A 2% service cost of collection was also adopted. The collection fees accruing to the tax collection agency was reduced from 4% which was applicable for non-oil revenue to 2% based on the inclusion of oil revenues. Sen. Seriake Dickson who raised the amendment noted that the 4% collection will make the funds accruing to the tax agency too much.
For the Nigeria Revenue Service Bill, the President shall act as Chairman of the Board while an Executive Vice Chairman, subject to Senate confirmation, would serve as head of the Service. Clause 7 was amended to reflect this structure: “The Chairman of the Board who shall be the President; and (b) Executive Vice Chairman who shall be the head of the Revenue Service and subject to confirmation of the Senate.”
To promote inclusivity, the new bill provides that six Executive Directors be appointed—one from each geopolitical zone—on a rotational basis, with no Executive Director and Vice Chairman coming from the same state.
Clause 4 expands the functions of the Service to include assessing corporate taxpayers, collaborating with ministries to reform tax regimes, and adopting measures to “trace, freeze, confiscate or seize proceeds derived from tax fraud or evasion,” while Clause 13(2) requires the Secretary of the Board to be a qualified legal or financial professional of not less than Deputy Director rank. Annual reports are to be submitted no later than three months after each fiscal year.
The Senate also introduced updated penalties for tax offences to deter non-compliance. This includes N100,000 fine for failure to register (Clause 100) in the first month, and N50,000 monthly thereafter.
Others include failure to file returns (Clause 101): N200,000 in the first month, N50,000 for each subsequent month; failure to keep records (Clause 102), N10,000 for individuals and N100,000 for companies and failure to remit tax (Clause 107).
In addition to administrative penalties, offenders face imprisonment for up to three years.
In his remarks, Akpabio who commended the committee on Finance and senators for a thorough job, expressed gratitude to the group of "elder senators" who collated and deliberated on areas of contention in the Tax Bill through meetings and consultation with dissenting voices.
He expressed optimism that the tax laws will revolutionalise and optimise tax collection across the country. He expressed satisfaction that the passage of the bills have dispelled rumours that they were meant to serve the interests of a part of the country, adding that all Nigerians will benefit from them.
Also in his remarks , the Deputy President of the Senate, Senator Barau Jibrin, APC, Kano North congratulated the entire Senate and in particular the Committee on Finance and the Elders Committee for the wisdom and leadership that has been shown in the passage of the bills.
Barau said, "Initially, there were disagreements and there were rancors here and there. But the Senate, standing on its position as the highest assembly in the land, decided to establish this committee, Committee of Elders (Special Committee), to look at all those areas of contention and hear the views of religious leaders, regional organisations and other stakeholders."
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