After six months of debate, the Tax Reform Bills have been passed by both the House of Representatives and the Senate and now await harmonisation.

The first two bills, the Nigeria Tax Administration Bill 2024 and the Nigeria Revenue Service (Establishment) Bill 2024, were passed on Wednesday.

The remaining two—the Nigeria Tax Bill 2024 and the Joint Revenue Board (Establishment) Bill 2024—were passed on Thursday.

While passing the bills, the Senate pegged the Value Added Tax (VAT) rate at 7.5 per cent and the distribution of the state VAT allocation to be 50 per cent for equality, 20 per cent based on population, and 30 percent based on consumption, as proposed by the Presidential Fiscal Policy and Tax Reforms Committee. It also recommends a VAT sharing formula of 10 per cent for the federal government, 55 per cent for states and the Federal Capital Territory, and 35 per cent for local governments.

In passing the bills, the Senate approved that 2% of the total revenue collected by the Nigeria Revenue Service be appropriated by the National Assembly.

The percentage, initially proposed as 3%, was reduced following an amendment by Senator Aliyu Wadada, who argued that 3% would amount to a revenue pool greater than the budgets of 16 states combined.

The Tax Reforms Committee, led by Mr. Taiwo Oyedele, had proposed a Value-Added Tax increase from 7.5 per cent to 10 per cent, targeting 15 per cent by 2030.

The tax reform bills were the outcome of rigorous work by the Presidential Fiscal Policy and Tax Reforms Committee.

The bills seek, among other things, to overhaul the country’s tax system, addressing complexities and inefficiencies.

The bills generated a lot of controversy, with different interest groups demanding their outright rejection.

The most controversial among them was the issue of the value-added tax distribution formula, which some sections of the country thought would put them at a disadvantage.

During the clause-by-clause consideration, the Senate amended Clause 22 to allow states to establish their own Revenue Tax Boards.

The Nigeria Revenue Service (Establishment) Bill introduced several structural and operational reforms.

The President will chair the Revenue Service Board, while an Executive Vice Chairman, subject to Senate confirmation, will serve as the head of the Service. Clause 7 was amended to reflect this leadership structure.

To ensure inclusivity, six Executive Directors will be appointed, each from a different geopolitical zone, with a rotational system to ensure no Executive Director and Vice Chairman come from the same state.

Clause 4 of the bill expands the Service’s responsibilities to include assessing corporate taxpayers, collaborating with ministries to review tax regimes, and adopting measures to trace, freeze, confiscate, or seize proceeds from tax fraud. Clause 13(2) requires that the Secretary of the Board be a lawyer, chartered accountant, or chartered secretary not below the rank of Deputy Director.

The Service must submit its annual reports within three months after each fiscal year.

The Senate also introduced updated penalties to curb non-compliance.

Failure to register with the tax authority will attract a N100,000 fine in the first month and N50,000 for each additional month.

Failure to file returns will incur N200,000 in the first month and N50,000 for each subsequent month.

Individuals who fail to keep proper records will be fined N10,000, while companies will be fined N100,000.

Offenders also face imprisonment for up to three years, depending on the severity of the violation.

Senator Seriake Dickson moved the amendment to reduce the tax collection agency’s commission from 4% to 2%, arguing that including oil revenues would significantly raise the funds due to the agency.

Furthermore, the Senate adopted recommendations on the Nigeria Tax Administration Bill, which provides for the assessment, collection, and accounting of revenue accruing to all tiers of government and outlines the responsibilities of tax authorities.

The penalties for non-compliance were detailed once again: N100,000 in the first month and N50,000 for each subsequent month for failure to register; N200,000 initially and N50,000 thereafter for failure to file returns; N10,000 for individuals and N100,000 for companies for failing to maintain proper books; and imprisonment for failure to remit taxes.

The tax bills are expected to become key instruments for fiscal transformation and national development.