THE HOUSE OF REPRESENTATIVES HAS APPROVED FOUR TAX REFORM BILLS
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On Thursday, the House of Representatives took a step toward passing the four tax reform proposals that President Bola Ahmed Tinubu presented to the legislature on October 8, 2024, by reviewing and approving the House Committee on Finance’s report.
This will be the third reading of the four bills before they are finally passed.
Nigeria Revenue Service (Establishment) Bill, Nigeria Tax Bill, Nigeria Tax Administration Bill, and Joint Revenue Board (Establishment) Bill were among the bills.
The four laws were first read on October 8, 2024, but the Nigerian Governors Forum and northern leaders objected, and members disagreed on the Nigeria Tax Administration Bill’s text, which prevented the House from debating the proposals.
Chairman of the House Committee on Finance James Abiodun Faleke presented the report for members to review. He stated that all controversial aspects of the bills were examined and settled by the committee during a six-day retreat, and that the report was based on the results of the retreat following the public hearing.
In order to guarantee fair representation, the committee suggests that the President designate six Executive Directors for the Nigeria Revenue Service, along with one representative from each of the 36 states.
He was worried that the Bill’s definition of “tax” may interfere with other organizations’ ability to collect taxes, such the Nigeria Customs Service.
The House examined and authorized the introduction of a new foundation for the distribution of the 55% and 35%, respectively, for State and Local Government allocation on Tuesday. The distribution of VAT revenue has been one of the most controversial topics.
He said 50 percent of the VAT money is to be allocated equally, 20% to be given based on population, and 30% to be based on consumption, adding that emphasis has also been placed on the actual place of consumption irrespective of where the VAT reports are filed.
Faleke emphasized that the focus should be on the place of consumption when collecting and distributing VAT resources, regardless of where the tax is filed or where the company’s headquarters is located.
He highlighted the importance of implementing strict measures to ensure that those collecting VAT on behalf of the government actually remit the full amount, in contrast to the current situation where supermarkets are remitting less than 10 percent of the VAT they collect.
The House also approved recommendations for the President to seek National Assembly approval before exempting any individual or class of income/profits from tax. Additionally, the Accountant-General is required to obtain a resolution from the National Assembly to deduct any unremitted revenue from MDAs.
Faleke noted that because the word “ecclesiastical” is only connected with Christianity and “religious” is religion-neutral, the committee suggested replacing it with the word “religious” in the Nigeria Tax Bill.
He added that because it goes beyond divine jurisdiction, which places inheritance matters under the purview of the Sharia and Customary Laws of the North and South, respectively, the Committee approved the removal of the proposed reintroduction of inheritance tax under the pretext of taxing family income.
Along with calling for the continuation of funds from the Development Levy and the reinstatement of contributions to NASENI and NITDA, the committee also suggested lowering the VAT rate to 5% or keeping it at the existing rate of 7.5%.
The House also reviewed and approved recommendations to reintroduce the requirement for a Certificate of Acceptance of Fixed Assets (CAFA) to claim capital allowances, as previously issued by the Industrial Inspectorate Department of the Federal Ministry of Industry, Trade, and Investment.
A proposal was made to introduce a 1.5% service charge, based on the economic development tax credit, for companies operating in priority sectors.
Faleke stated that oil and gas royalties will no longer be collected by the Federal Inland Revenue Service, and the NUPRC will focus only on operational matters, as royalties are regarded as a form of tax. Additionally, the exemption and incentive clauses of the NEPZA and OGFZA Acts will be removed, reverting to the current provisions and practices of these free zone enterprises.
Faleke further explained that the Committee proposed amendments to eliminate the planned gradual reduction in the company income tax rate from 30% to 27.5% in 2025 and 25% in 2026. Based on the recommendation of the Nigerian Governors’ Forum, the tax rate for companies, except small ones, will remain at 30%. The Committee also recommended that companies in the priority sector should benefit from a reduced tax rate of 25% for a five-year priority period.
Faleke mentioned that among the approved recommendations at plenary on Thursday, taxes should be collected in the currency in which they are assessed. He noted that there had been debates about collecting taxes in naira when assessed in foreign currency, but the committee agreed that taxes should be collected in the currency in which they were assessed.
He also revealed that although the free trade zones were created as tax-free areas for export production, companies operating in these zones have started importing their products into the Nigerian market, violating the established regulations.
In response, he explained that the committee recommended that such companies be permitted to import only 25 percent of their manufactured goods into the Nigerian market, with the remaining 75 percent to be exported out of the country, accompanied by proof, in order to continue benefiting from tax incentives.
Additionally, he mentioned that the committee proposed reducing the period for filing tax returns for companies intending to wind up their operations from six months to three months.
He further noted that amendments were made to this section to clarify that only multinationals with a group aggregate turnover of at least £750 million, or its equivalent, would be subject to the global minimum tax, in line with global best practices.
“The section was also amended to increase the qualifying threshold for minimum tax for resident from a turnover of ₦20 billion to ₦50 billion, as well as exclude free zone entities which export at least 75% of its goods and services, from the minimum tax regime.
Furthermore, the net profit of life assurance companies to be considered for the minimum tax has been amended to exclude gross premium and investment income for policyholders.”
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