Nine Major Facts About Tinubu’s Controversial Tax Bills
President Bola Ahmed Tinubu submitted four tax reform bills to the National Assembly on September 3, 2024.
These bills—the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill—are designed to overhaul Nigeria’s tax system, providing a clearer and more effective framework for taxation.
While these bills aim to “redesign the system to support growth by addressing current challenges such as the multiplicity of taxes, ambiguous and obsolete provisions, and reducing the tax burden on individuals and businesses,” they have drawn significant criticism, particularly from the northern region of the country.
At the center of the controversy is the Value Added Tax (VAT) component, a subsection of the Tax Administration Bill. Economic Confidential highlights nine key facts about this contentious reform:
1. Constitutional Gap
VAT issues are not currently addressed in the 1999 Constitution. This bill seeks to bridge that gap by formalizing VAT provisions.
2. Centralized VAT Collection
The proposed reform aims to establish a more centralized and efficient VAT collection system to ensure equitable benefits for all states.
3. Proposed Sharing Formula
Under the current VAT distribution formula, 15% goes to the Federal Government (FG), 50% to states, and 35% to local governments (LGs). States share their portion using a 50:30:20 ratio based on equality, population, and derivation.
The new proposal would reduce the FG’s share to 10%, increase states’ allocation to 55%, and retain 35% for LGs. States would also adjust their internal sharing formula to 20:20:60, emphasizing derivation.
4. Eliminating Double Taxation
Several states impose parallel consumption taxes alongside VAT, increasing the tax burden on businesses and individuals. The reform seeks to abolish these practices, thereby reducing multiple taxation.
5. Place of Supply Principle
The bill proposes a fundamental shift to attribute VAT to the place of supply and consumption, as opposed to the current model that favors states where companies’ headquarters are located.
6. Equity in Revenue Distribution
Under the new model, 60% of VAT distribution would be based on derivation. This is intended to promote fairness among states and discourage individual states from attempting to administer VAT as a state tax, which could reduce overall revenue and increase administrative challenges.
7. Legal Backing for Derivation
The derivation model is explicitly detailed in Section 22(12) of the Nigeria Tax Administration Bill, giving it a strong legal foundation.
8. Revenue Concerns
Critics have expressed concerns that the proposed formula could lead to reduced revenue for some states, particularly those currently benefiting from the existing VAT structure.
9. Equalization Fund
To address potential revenue shortfalls for certain states, the reform proposes that 5% of the FG’s allocation be redirected to an equalization fund. This fund would ensure that no state suffers significant financial setbacks under the new model.
President Tinubu’s VAT reform is a bold step towards addressing inefficiencies and inequities in Nigeria’s tax system. However, it has ignited intense debates over its potential implications for state revenues and economic fairness. As the National Assembly deliberates on the bills, these concerns will play a crucial role
