President Bola Tinubu’s proposed tax reforms present a transformative blueprint for state-level fiscal empowerment in Nigeria.
The measures outlined in the bills seek to address long-standing revenue challenges, streamline the tax system, and incentivize states to improve their economic management.
Key Ways the Reforms Enhance State Revenue:
1. Increased VAT Allocation to States
The federal government will reduce its share of Value Added Tax (VAT) from 15% to 10%, ceding an additional 5% to states. This adjustment will immediately bolster states’ VAT revenue.
2. Exclusive Revenue from Electronic Money Transfers
The bills propose transferring income from the Electronic Money Transfer levy, previously part of federal revenue, exclusively to states under updated stamp duty laws.
3. Modernizing Stamp Duty Laws
By repealing outdated stamp duty regulations and simplifying the framework, the bills aim to make it easier for states to collect and maximize revenue from this source.
4. Taxation of Limited Liability Partnerships (LLPs)
States will now have the authority to tax LLPs, adding a new revenue stream under the updated tax provisions.
5. Exemption on State-Issued Bonds
State government bonds will be granted tax-exempt status, similar to federal bonds, enhancing their attractiveness to investors and lowering borrowing costs for state projects.
6. Fairer VAT Distribution
The bills propose a more equitable model for distributing VAT revenue, ensuring states earn a larger share based on contributions and need.
7. Integrated Tax Administration
Enhanced systems will improve tax intelligence, capacity building, and inter-governmental collaboration. Expanding the Tax Appeal Tribunal’s jurisdiction will also provide a fairer platform for resolving disputes on state taxes.
8. Direct Remittance of Personal Income Tax
The Accountant General will be empowered to directly deduct and remit personal income taxes from federal workers in states to the respective state governments, eliminating delays.
9. Autonomy for State Revenue Services
A new legal framework will grant more independence to states’ internal revenue services and foster collaboration through a stronger Joint Revenue Board.
10. Taxing Lotteries and Gaming
The bills introduce a withholding tax on lottery and gaming activities, providing states with an additional revenue source.
Implications for States
Beyond increasing revenue, the reforms emphasize collaboration and accountability. The streamlined tax system and equitable distribution model will challenge states to maximize these opportunities by investing in infrastructure, enhancing business environments, and supporting socio-economic growth.
This policy shift underscores the federal government’s commitment to fiscal federalism, empowering states to become significant economic drivers within Nigeria’s economy. However, state governments must rise to the occasion, leveraging these reforms to create sustainable revenue systems and attract investments.
The tax bills, once enacted, could serve as a game-changer in Nigeria’s fiscal landscape, fostering economic autonomy and reducing states’ dependence on federal allocations.
