•Approves 5% Tax Revenue for National Cyber & Defense Security Fund.
••Moves Petroleum Tax Provisions from PIA
By OBSERVERS TIMES
The Nigerian Senate has passed two pivotal tax reform bills presented by President Bola Tinubu, while notably rejecting a proposed increase in the Value Added Tax (VAT). The bills, the Nigeria Revenue Service Amendment Bill 2025 and the Nigeria Tax Administration Bill 2025, were approved after extensive deliberations on Wednesday.
A key highlight of the passed bills is the retention of the VAT rate at 7.5 percent, a decision that comes amidst ongoing discussions about the nation’s fiscal policies. The revenue sharing formula for VAT was established at 10 percent for the federal government and the Federal Capital Territory (FCT), 55 percent for state governments, and 35 percent for local governments.
Furthermore, the distribution of VAT revenue among states and local governments will be based on a formula that allocates 50 percent for equality, 20 percent for population, and 30 percent for the place of consumption. This distribution model aims to ensure a balanced and equitable allocation of resources across the country.
The newly established Nigeria Revenue Service, which replaces the Federal Inland Revenue Service (FIRS), will retain two percent of the total tax revenue collected on behalf of the federal government as collection cost. This allocation will be subject to appropriation by the National Assembly and periodic reviews based on prevailing economic conditions. Originally, the bill had proposed a three percent retention, but lawmakers argued that this amount could exceed the monthly revenue allocations of approximately 17 states.
Another significant amendment was the replacement of the “derivation” clause in the original bill with “place of consumption,” reflecting a shift in the approach to revenue sharing.
In a move aimed at bolstering national security, the Senate also approved the allocation of five percent of tax revenue to establish the National Cyber Security Fund and Defence Security Fund.
The bills also introduced a four percent development levy, intended to replace earmarked taxes in various existing laws, including those related to the Tertiary Education Trust Fund (TETFUND), the National Information Technology Development Agency (NITDA), and the National Agency for Science and Engineering Infrastructure (NASENI). Lawmakers acknowledged that phasing out funding for these agencies could hinder advancements in education and technology.
Additionally, the Senate made consequential amendments to the Petroleum Industry Act (PIA) by incorporating its fiscal provisions into the Nigeria Tax Bill. This places the administration of royalties under the PIA, the Petroleum Profit Tax Act (PPTA), and the Deep Offshore Inland Basin Production Sharing Contract Act (DOIBA) under the jurisdiction of the Nigeria Revenue Service (NRS).
The NRS is now empowered to assess taxes for individuals, corporations, and companies, excluding individual residents in states or the FCT. It will also collaborate with relevant government ministries and agencies to review tax regimes and promote the use of taxation for economic development, subject to Senate approval. The agency will also be authorized to identify, trace, freeze, confiscate, or seize proceeds derived from tax fraud or evasion.
The Senate is scheduled to deliberate and pass the remaining two tax reform bills—the Joint Revenue Board (Establishment) Bill 2025 and the Nigeria Tax Bill 2025—on Thursday. This legislative push signals the government’s commitment to overhauling the tax system to enhance revenue generation and promote economic stability.
