Market News

Nume Ekeghe

Analysts in the financial service sector have lauded the recent passage of four major tax reform bills by the Nigerian Senate, describing them as a bold step toward fiscal federalism and a rebalancing of revenue control between the federal and subnational governments.

The four bills, the Nigeria Revenue Service Establishment Bill, the Nigerian Tax Administration Bill, the Nigeria Tax Bill 2024, and the Joint Revenue Board Establishment Bill form a critical pillar of President Bola Tinubu’s fiscal reform agenda. Together, they propose a sweeping overhaul of Nigeria’s tax architecture, including the replacement of the Federal Inland Revenue Service (FIRS) with a new Nigerian Revenue Service (NRS), harmonisation of tax administration across tiers of government, and a coordinated national approach to tax policy enforcement.

One of the most debated provisions was the revision of the Value Added Tax (VAT) sharing formula. While the Senate rejected a proposal to gradually raise VAT from 7.5 per cent to 15 per cent by 2030, it approved a redistribution of revenues. Under the new formula, the federal government’s share drops from 15 per cent to 10 per cent, the states’ share rises from 50 per cent to 55 per cent, and local governments retain their 35 per cent allocation.

Analysts at Parthian Partners described the VAT adjustment as noteworthy, adding that based on the place of consumption.

They stated: “Notably, VAT rate was left unchanged at 7.5 per cent, as against the proposed increase to 10 per cent. However, there was a revision in the VAT sharing formula. Now based on the place of consumption, the Federal Government will receive 10 per cent, down from 15 per cent, States will get 55 per cent up from 50 per cent, while Local Governments will receive 35 per cent unchanged.  

On their part, Commercio Partners noted that the restructuring of the Nigerian Revenue Service would bring greater accountability through “regional representation and strict reporting standards,” while allowing more room for state autonomy in tax matters. “The Senate passed all four tax reform bills proposed by President Tinubu, rejecting attempts to raise VAT and cut statutory funding for key agencies like TETFund, NITDA, and NASENI,” the firm stated.

The reforms are also seen as a political win for state governors, many of whom have long agitated for a fairer revenue-sharing formula. Analysts argue that the new structure, while still centrally coordinated, gives subnational entities a stronger fiscal base to develop infrastructure and improve social services.

In its policy outlook, Commercio added that while stakeholder resistance—particularly from labour unions like the TUC and academic unions like ASUU—played a role in halting the VAT increase, the retention of the existing rate alongside a more equitable revenue formula shows that legislative compromise is still possible in Nigeria’s tax policy discourse.

They stated: “The Nigerian Senate has successfully passed all four tax reform bills proposed by President Bola Tinubu, marking a significant step in overhauling the country’s tax administration and revenue collection systems. Recently, the Senate approved the Nigeria Revenue Service Establishment Bill and the Nigerian Tax Administration Bill, which, among other provisions, proposed the replacement of the Federal Inland Revenue Service (FIRS) with a new Nigerian Revenue Service (NRS) and recommended adjustments to the VAT revenue-sharing formula to favour states and local governments.

“The structure of the NRS includes regional representation and strict reporting standards, while debates centered around VAT collection methods and the autonomy of states in revenue sharing. On Thursday, the Senate passed the Nigeria Tax Bill 2024 and the Joint Revenue Board Establishment Bill, rejecting proposals to gradually increase VAT to 15 per cent by 2030 and to reduce statutory funding for key agencies like TETFund, NITDA, and NASENI.

“Stakeholder opposition, especially from TUC and ASUU, led the Senate to retain the 7.5 per cent VAT rate and preserve agency funding, while recommending the inclusion of cybersecurity and defense agencies in the distribution of statutory funds. With all four bills passed and a harmonisation committee set up to reconcile differences with the House of Representatives’ version, the final unified bills will be sent to President Tinubu for assent.” With the establishment of a harmonisation committee to reconcile differences with the House of Representatives’ version of the bills, analysts are optimistic the final laws once signed by the President could signal a shift in Nigeria’s fiscal structure toward one that encourages state-led development and diversifies the revenue base beyond oil.