Six contentious clauses lawmakers may amend in tax reform bills

The four tax bills before the National Assembly intended to reform Nigeria’s tax system, which has been described as one of the oldest in the world, have faced stiff resistance, especially form the Northern region, and there are indications that the bills may not be passed in the original state they were presented.

President Bola Tinubu, in October 2024, transmitted the Nigeria Tax Bill, the Tax Administration Bill, Nigeria Revenue Service Bill, and the Joint Revenue Board Tax Bill to the National Assembly.

The Northern caucuses of Nigeria’s Parliament did not hide their resentment for certain clauses in the tax bills, especially at the Federal House of Representatives, where the bills barely scaled through first reading and only passed second reading after the House adopted the position of the Northern Governors’ Forum, which reviewed some contentious clauses.

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Lawmakers have also firmly resolved to amend all contentious clauses in the bills which they deemed disadvantageous to the populace before it is eventually passed.

Here are some of the most contentious clauses which lawmakers are determined to amend, as public hearing on the bills opened on Monday.

1. Revenue derivation Formula: This is the most contentious aspect of the bills. The House of Representatives have however adopted the position of the NGF on revenue derivation formula and is seeking to amend sections 22 and 77 of the Tax Administration Bill, which proposes a new VAT sharing formulae of 10% to the Federal Government, 55% to States, and 35% to Local Government areas (LGAs). The section also proposes for the distribution of 60% of the VAT revenue standing to the credit of the States and Local Governments based on derivation.

Currently, VAT revenue is shared as follows: 15% to the Federal Government, 50% to States, and 35% to LGAs. States use a 50:30:20 formula—50% for equality, 30% for population, and 20% for derivation.

However, the NGF have revised VAT sharing formula to 50% based on equality, 30% based on derivation, and 20% based on population.

The new tax bill places VAT at the place of supply and consumption rather than the current model which attributes VAT to the state where it is remitted, thereby favouring some States.

2.VAT Increase

Lawmakers have kicked against the gradual increase in VAT and have called for outright expunge from the bills, saying it would exacerbate economic hardship and increase the cost-of-living crisis for Nigerians. This is also position of the NGF. Section 146 proposes to raise VAT from 7.5% to 10% by 2025, with further increases to 12.5% from 2026 to 2029, and 15% from 2030 onwards.

At its last debate on the tax bills held February 12, majority of lawmakers in the Green Chamber kicked against VAT increase and resolved to amend the clause

3. Discretionary powers to the President

This is another contested clause at the House of Representatives. Section 75 of the proposed Tax Administration Bill gives the president the unlimited power to exempt from income tax any company or class of companies and any profits of any company or class of companies from any source on any ground that appears to be sufficient.

Clause 75(2) proposes that the president may, by order, amend, add, or repeal any tax exemption. Lawmakers are worried that such discretionary power will be subject to abuse and will not helpful. They said this clase have faced stiff resentment from their constituents, and seek amendment.

4. Reduction in Company Income Tax

Lawmakers are seeking a reduction in the CIT in line with NGF stand. Section 56 of the tax bill outlines tax rates to be imposed on the total profits of companies, with small companies taxed at 0 percent. All other companies will face a tax rate of 27.5% in 2025, reducing to 25% from 2026. If a company’s effective tax rate is less than 15 percent in any assessment year, it must recompute and pay an additional tax to bring it up to the 15% threshold.

This provision applies to companies within multinational enterprise groups and any company with an aggregate turnover exceeding N20 billion in the relevant year.

5. Sustained funding for TETFUND, NASENI, NITDA without terminal clauses:

Lawmaker have expressed concerns as Section 59 of the tax bill proposes a development levy and gradual reduction of funding to TETFUND, NASENI and NITDA. They expressed concerns that the bills have not provided an alternate finding mechanism and kicked against move to stop funding for these agencies, which they said suggests gradual scrapping.

The section stipulates a development levy on the assessable profits of companies, excluding small and non-resident companies. The levy will be 4% for 2025 and 2026, 3 percent from 2027 to 2029, and 2% from 2030 onwards. The levy will fund the Student Education Loan Fund.

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The revenue distribution is as follows; the Tertiary Education Trust Fund will receive 50% in 2025 and 2026, 66% from 2027 to 2029, and 0% from 2030 onwards. The Student Education Loan Fund will receive 25% in 2025 and 2026, 33% from 2027 to 2029, and 100% from 2030 onwards.

The National Information Technology Development Fund will receive 20% in 2025 and 2026, and 0% from 2027 onwards. The National Agency for Science and Engineering Infrastructure will receive 5% in 2025 and 2026, and 0% from 2027 onwards.

The NGF also opposed the inclusion of terminal clauses that would limit the duration of these levies, emphasising the need for sustained funding for educational and technological advancement.

6. Supremacy Clause: The House is against Section 141, which grants supremacy of the bill, saying it is against already established laws in the 1999 Constitution as amended.

It proposes that the tax bills shall “take precedence over any other laws with regards to the administration, assessment, collection, accounting and enforcement of taxes and levies due to the relevant tiers of Government and if the provisions of any other law are inconsistent with the provisions of this Act, the provisions of this Act shall prevail and the provisions of that other law shall, to the extent of the inconsistency, be void some of the positions of the Constitution of the Federal Republic of Nigeria.”