In a landmark move aimed at restructuring Nigeria’s tax system, the House of Representatives has approved key tax reform bills, retaining the current 7.5% Value Added Tax (VAT) rate while introducing a revised distribution formula that seeks to balance equity, population size, and consumption patterns. This decision comes as part of broader economic reforms designed to optimize revenue allocation and enhance fiscal responsibility across the country.
Under the newly approved VAT sharing formula, 50% of revenue generated will be distributed equally among all states, ensuring a baseline allocation that supports national development. Meanwhile, 20% will be allocated based on population size, acknowledging the financial demands of more densely populated regions. The remaining 30% will be distributed according to consumption levels, rewarding states with higher economic activity and commercial transactions.
This revised structure marks a significant departure from previous VAT allocation methods, which many stakeholders had criticized for disproportionately favoring certain states while neglecting others. By incorporating population and consumption as key determinants, the new formula aims to ensure a more balanced and equitable distribution of resources. Economic analysts have hailed the reform as a step toward reducing revenue dependency on oil earnings while encouraging states to boost local commerce and consumer spending.
Beyond VAT, the House of Representatives has also addressed a contentious issue in the tax reform bills—the inheritance tax clause. Lawmakers clarified that any inheritance received before the dissolution of an estate cannot be subjected to taxation. This amendment alleviates concerns that retroactive taxation could lead to legal disputes and financial burdens on beneficiaries. The decision has been widely welcomed, particularly among legal experts and financial advisors, who argue that clear tax guidelines are essential for wealth transfer planning and investment stability.
In another crucial development, the House has approved the continued funding of major national agencies, including the Tertiary Education Trust Fund (TETFUND), the National Agency for Science and Engineering Infrastructure (NASENI), and the National Information Technology Development Agency (NITDA), through the development levies fund. This provision ensures that these agencies will continue to receive financial support essential for advancing education, technological innovation, and infrastructure growth.
The approval of these tax reforms signals the government’s commitment to strengthening Nigeria’s economic framework and creating a more predictable, transparent, and fair taxation system. However, the implementation phase is expected to generate further debates, particularly regarding how states will adjust to the new VAT distribution method and whether the changes will translate into tangible improvements in public services and infrastructure.
As Nigeria moves toward a more structured tax regime, all eyes will be on the Federal Government’s next steps in ensuring seamless execution and compliance. Stakeholders, including business leaders, financial institutions, and state governments, are expected to closely monitor the impact of these reforms on revenue generation and economic stability.
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