Between Wednesday and Thursday, 7th and 8th of May 2025, the Senate passed all four of President Bola Ahmed Tinubu's proposed tax reform bills for the next step of enactment into laws. These are the Nigeria Tax Bill, the Nigeria Revenue Service (Establishment) Bill, the Nigeria Tax Administration Bill, and the Joint Revenue Board (Establishment) Bill (collectively, the "Tax Reform Bills"). The House of Representatives had passed the Tax Reform Bills on 18 March 2025.
The Senate made some changes to the bills, some of which are different from those made by the House of Representatives. Because of the key differences in the versions of the Tax Reform Bills passed by the Senate and the House of Representatives, the two arms of the National Assembly will need to harmonize both versions.
Consequently, the next step is for both the Senate and the House of Representatives to set up a joint committee that will meet to harmonise the changes to their respective versions of the Tax Reform Bills and agree on unified and consolidated versions will then be presented to the President for assent. We understand that both arms of the National Assembly are currently working on these legislative processes.
The Tax Reform Bills will become law when the President assents to them – an act he is constitutionally required to perform within 30 days of receiving the consolidated Tax Reform Bills from the Clerk to the National Assembly. Should the President withhold his assent, the National Assembly could either override his assent by a two-thirds majority for the bills to become laws or allow the bills to lapse. If the latter happens, the bills must go through the normal legislative processes again.
If the President assents to the bills, it is expected that the changes introduced by the new laws will commence 90 days after the Tax Reform Bills are signed into law. This is to give taxpayers sufficient time to adjust their processes to comply with the requirements of the new laws.
Key Differences in the version of the Tax Reform Bills passed by the Senate:
1. Revised Value Added Tax Sharing Formula:
The Senate retained the Value Added Tax ("VAT") rate at 7.5% (opposed to the proposed increase to 10% and eventually 15% by January 2030). The allocation of VAT revenue has been revised as follows: (a) the Federal Government's share was reduced from 15% to 10%; (b) the State Governments' share was increased from 50% to 55%, and (c) the Local Governments and Area Councils' share remains at 35%.
The version of the Tax Reform Bills in circulation provides that 60% of the amount standing to the credit of states and local governments shall be distributed among them based on derivation. Still, news reports indicate that the derivation ratio has been reduced to 30%.
2. Revised Sharing Formula for the 4% Development Levy:
A new 4% development levy was introduced to support key national development agencies. The original proposals considered contributions to specific funds for a limited period, but the Senate proposed that the sharing formula for the 4% levy should be as follows:
(a) Tertiary Education Trust Fund– 50%;
(b) Nigerian Education Loan Fund – 15%;
(c) National Information Technology Development Agency – 10%;
(d) National Agency for Science and Engineering Infrastructure Fund – 10%;
(e) National Cybersecurity Fund – 5%;
(f) Defence Security Fund – 10%.
It appears the 4% levy will not be limited to a specified period, as the Presidential Committee on Fiscal Policy and Tax Reforms originally proposed.
3. Rejection of Implied Inheritance Tax Proposals
Some misconceptions exist that the Tax Reform Bills had proposed reintroducing an inheritance tax in the country. The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms clarified this misconception by stating that there was no such intention. We understand that specific changes have been made in the Senate's version of the Tax Reform Bills to clarify that the inheritance tax has not been reintroduced.
Conclusion
We believe the National Assembly will soon present the harmonised versions of the Tax Reforms Bills for his assent. Given that the bills emanated from the executive and have substantially been passed by the National Assembly in the manner presented by the President, we believe that the President will assent to the Tax Reform Bills. Once the Tax Reforms Bills become laws, significant changes will be made to the Nigerian tax system. Consequently, taxpayers will need to understand the effects of the laws, take concrete steps to reorganise their systems and processes, put mechanisms in place, etc, to ensure that they can comply with the new demands of the laws.
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