***Introduces New VAT Sharing Model Based on Consumption
In a landmark move to modernize Nigeria’s tax system, the Senate on Wednesday passed two out of four comprehensive tax reform bills. The approved legislations—the Nigeria Revenue Service (Establishment) Bill, 2025 and the Nigeria Tax Administration Bill, 2025—represent a fundamental restructuring of the country’s revenue framework.
Senate President Godswill Akpabio confirmed the passage after both bills scaled third reading. They now await concurrence by the House of Representatives and presidential assent before becoming law.
One of the most consequential changes is the replacement of the term “derivation” with “place of consumption” in the Value Added Tax (VAT) allocation formula. This revision means revenue will now be shared based on where goods and services are consumed, not where they are produced.
Federal Government: 10%
States and FCT: 55%
Local Governments: 35%
Among states: 50% of their share will be distributed equally
20% based on population
30% based on place of consumption
Among local governments:
70% will be shared equally
30% based on population
In a bid to improve fiscal efficiency, the collection fee charged to tax authorities was reduced from 4% to 2%, especially given the inclusion of oil revenue under the new law. Senator Seriake Dickson, who moved the amendment, explained that the previous rate would have led to excessive earnings by the collecting agency.
The Nigeria Revenue Service Bill introduces a restructured tax authority whereby the President of Nigeria will chair the Board.
A newly created Executive Vice Chairman will serve as the agency’s operational head, subject to Senate confirmation.
Six Executive Directors, one from each geopolitical zone, will be appointed rotationally to ensure regional balance.
The Nigeria Tax Administration Bill outlines stiffer penalties to enhance compliance to include, failure to register: N100,000 in the first month; N50,000 monthly thereafter,
Failure to file returns: N200,000 first month; N50,000 subsequently
Failure to keep records: N10,000 (individuals); N100,000 (companies)
Failure to remit taxes: Financial penalties and possible imprisonment up to 3 years
The Board Secretary must be a qualified legal or financial expert not below the rank of Deputy Director. Annual reports are now mandated within three months of the fiscal year’s end.
Senate President Akpabio commended the Finance Committee and the Special Committee of Elders for their extensive consultations across regional, religious, and political lines.
“These reforms are built on consensus, not coercion. They are national in character and will strengthen our tax institutions for the benefit of all Nigerians,” Akpabio said.
Deputy Senate President, Sen. Barau Jibrin, echoed the sentiment, noting that stakeholder engagement was key to calming initial tensions and ensuring the bills’ acceptability nationwide.
The final two bills in the reform package—the Joint Revenue Board (Establishment) Bill and the Nigeria Tax Bill—are expected to be debated and passed on Thursday.
