The House of Representatives on Thursday moved a step closer to the eventually passage of the four tax retorm bills presented by President Bola Ahmed Tinubu to the parliament on the 8th of October, 2024 with the consideration and apprival of the report of the House Committee on Finance.
The four bill will now be read for the third time before eventual passage.
The bills included the Nigeria Revenue Service (Establishment) Bill, the Nigeria Tax Bill, the Nigeria Tax Administration Bill, and the Joint Revenue Board (Establishment) Bill.
The four bills were read for the first time on the 8th of October 2024, but debate on the bills had been held back in the House due to disagreement by members on the content of the Nigeria Tax Administration Bill following objection by northern leaders and the Nigerian Governors Forum.
Presenting the report for consideration by members, Chairman of the House Committee on Finance, James Abiodun Faleke said all contentious areas of the bills were considered by the committee during a six day retreat and resolved, adding that the outcome of the retreat after the public hearing form the report considered.
The committee recommends the appointment of six Executive Directors for the Nigeria Revenue Service to be appointed by the President and one representative from the 36 states to ensure equitable representation.
He expressed concern that the definition of ‘tax’ as contained in the Bill may encroach on the revenue collection function of other agencies such as the Nigeria Customs Service.
On Tuesday distribution of VAT revenue which has been one of the contentious issues, the House considered abd approved that a new basis for the distribution of the 55% and 35% respectively for State and Local Government allocation has be introduced.
He said 50 percent of the VAT revenue is to be distributed equally, 20% to be distributed 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 returns are filed.
Faleke explained that emphasis should be placed on the place of consumption in the collection and distribution of VAT resources irrespective of where the tex was filed or where the headquarters of the company filing the return is located.
He stressed the need for stringent measures to ensure that those collecting VAT on behalf of the government remit same as against the recent trend where supermarkets collecting VAT remit less than 10 percent of what they collect.
The House also approved the recommendations that the President seeks and obtain the approval of the National Assembly to exempt any person or class of income/profits from tax, while the Accountant-General is to receive a resolution from the National Assembly in order to deduct any unremitted revenue due from MDAs.
Faleke said the committee proposed the replacement of the word ecclesiastical’ with ‘religious’ in the Nigeria Tax bill as the former is associated only with the Christianity and the latter is religion-neutral.
He also said the Committee agreed to the deletion of the proposed re-introduction of inheritance tax under the guise of taxation of family income, as this oversteps divine jurisdiction which places inheritance matters within the scope of the Sharia and Customary Laws of the North and South respectively.
The committee also proposed reduction of VAT rate to 5% or alternatively, maintain the current rate of 7.5% while also recommending for the re-instatement of contributions towards NASENI and NITDA, and a call to ensure continuous funding from the Development Levy.
The House alsp considered and approved the recommendations to reinstate the need for a Certificate of Acceptance of Fixed Assets (CAFA), to claim capital allowance, as historically issued by the Industrial Inspectorate Department of the Federal Ministry of Industry, Trade and Investment.
Proposal for an introduction of a 1.5% service charge, based on the economic development tax credit, for companies operating in the priority sector.
Faleke said oil and gas royalties will not be collected by the Federal Inland Revenue Service while the NUPRC will be restricted to operational matters since royalty is considered a form of tax, while also deleting the exemption and incentive clauses of the NEPZA and OGFZA Act while reverting to revert to the current provisions of the NEPZA and OGFZA Act, as well as the current practice of the enterprises within the free zone entities.
Faleke also explained that the Committee proposed amendments to remove the staggered reduction in companies income tax rate from 30% to 27.5% in 2025 and 25% in 2026. Per the recommendation by the Nigerian Governors’ Forum, the tax rate of companies other than small companies remains 30%. The Committee further recommends that the tax rate of companies in the priority sector as should be reduced to 25% during the priority period of 5 years.
Faleke said part of the recommendations approved at plenary on Thursday including collecting taxes in the currency in which the taxes were accessed, saying there has been argument that when taxes are accessed foreign currency, they should be collected in naira.
He said “the committee agreed that taxes should collected in the currency in which it was accessed”
He also disclosed that while the free trade zones were established as tax free zones for export production, companies operating in the zones have begun to import their produce into the Nigerian market in contravention of the rules.
In the light of this, he said the committee recommended that such companies be allowed to import only 25 percent of the manufactured goods into the Nigerian market while the balance of 75 percent should be exported out of the country with evidence before they can enjoy the tax incentives.
He said further that the committee also recommend the period for filing tax return for companies wishing to wind up their operation be reviewed down ward from six months to three months.
He said “Amendments were made to this section to emphasise that only multinationals with a group aggregate turnover of at least £750m or its equivalent are 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.”