States whose allocation have tripled as a result of the withdrawal of petrol subsidy by President Bola Tinubu will earn more revenue from the Value Added Tax (VAT) distribution in the new tax regime.
The tax law signed last month by the President is due to take effect from January.
In the VAT distribution in the VAT distribution plan state governments will receive 55 per cent of, up from the current 50 per cent.
In contrast, the Federal Government’s share will drop from 15 per cent to 10 per cent. That of local governments will remain at 35 per cent.
The adjustments are a part of the new tax administration policy signed by President Bola Tinubu early last month. They also mark a shift in Nigeria’s fiscal framework.
The revised VAT sharing formula reflects growing calls for more fiscal decentralisation and is expected to boost the financial capacity of states.
A senior official at the Federal Ministry of Finance described the development as ‘a political and economic compromise’ intended to aligning fiscal responsibility with revenue allocation.
Beyond the new sharing ratio, the Act changes how VAT revenues are distributed among states and local governments. Of the VAT portion allocated to them, 50 per cent will be shared equally among all states and LGAs, 20 per cent will be distributed based on population size and 30 per cent based on actual consumption of goods and services within each area.
This new formula replaces the old method that allocated part of the revenue based on where companies filed their VAT returns, often to the advantage of states hosting corporate headquarters.
The law also places new obligations on financial institutions. Banks, insurance firms, stockbroking companies and other financial operators are now required to file quarterly reports to the tax authorities.
The reports must list all new customers and identify individual accounts with monthly transactions of N25 million or more, and corporate accounts with cumulative monthly transactions of at least N100 million.
This measure is expected to enhance tax surveillance and improve compliance by tracking high-value financial activities.
To strengthen the tax refund system, the Act mandates that refunds must be deducted before VAT revenue is shared.
The Accountant-General of the Federation or a state must set aside the refund amount into dedicated Tax Refund Accounts based on claims submitted by tax authorities.
These accounts are to be reconciled monthly, and any leftover funds can be used to meet future refund claims, ensuring a more predictable and transparent refund process.
In a move to simplify Nigeria’s trade procedures, the Nigeria Revenue Service, which will replace the Federal Inland Revenue Service from January is empowered to launch a National Single Window Portal. The platform will serve as a one-stop online hub for importers, exporters and those engaged in transit operations.
Users can electronically submit trade documents, make payments for duties and levies, and provide transaction data through the same portal.
The platform is intended to streamline operations, reduce delays and improve government revenue from cross-border trade. The service will also regulate administrative charges related to the portal.
The law also expands the powers of tax officers, granting them the right to inspect records—whether physical or electronic—on any premises, provided it is done within reasonable hours.
If necessary, tax officers can seize digital storage devices to prevent tampering or loss of evidence. Where the authority has the capability, it may make exact digital copies of the data for investigations or legal action.
Private homes are protected under the law. Tax officers can only enter with the consent of the occupier or a warrant issued by a judge. Such warrants must be valid for up to three months and can be renewed upon application. They must also name the authorised officer and specify the scope of the search.
Each of Nigeria’s 36 states is now required to establish a State Internal Revenue Service (SIRS) with full autonomy over its administrative, financial, and operational affairs.
