Senate Passes Tax Reform Bills, Retains 7.5% VAT

The Nigerian Senate has passed two key tax reform bills proposed by President Bola Tinubu, marking a major milestone in efforts to restructure the country’s tax administration and fiscal policies.

The approved bills—Nigeria Revenue Service (Establishment) Bill and the Nigeria Tax Administration Bill—were passed on Wednesday, May 7, 2025, after extensive debates and scrutiny. Crucially, the Senate chose to retain the Value Added Tax (VAT) rate at 7.5%, rejecting proposals for a gradual increase to 15% by 2030.

The two remaining tax reform bills—the Nigerian Tax Bill and the Revenue Tax Board Bill—are scheduled for deliberation on Thursday, May 8.

Led by Senator Sani Musa, the Senate Committee on Finance played a pivotal role in refining the bills, incorporating stakeholder feedback to address widespread concerns. Senate President Godswill Akpabio commended the collaborative efforts, highlighting that the reforms reflect broad national consensus.

“These tax laws will optimize revenue collection and benefit all Nigerians, not just a select few,” Akpabio emphasized, dismissing claims of regional bias.

One of the notable components of the reform is the restructuring of the Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service, granting it broader powers to enhance tax compliance and streamline collection processes.

Additionally, the Senate approved a new VAT revenue-sharing formula:

• 55% to states
• 35% to local governments
• 10% to the federal government

This change aims to deepen fiscal decentralization and give sub-national governments greater control over revenue use.

In a move to protect vulnerable citizens, the reforms exempt essential goods and services—such as food, education, healthcare, and public transportation—from VAT. Businesses are also expected to benefit from VAT credits on assets and production costs, potentially reducing operating expenses and consumer prices by up to 7.5%.

The Presidential Committee on Fiscal Policy and Tax Reforms applauded the Senate’s action, stating that the new framework will simplify Nigeria’s tax system, improve compliance, and foster economic growth by boosting household income and reducing cost-of-living pressures.

However, not all reactions have been positive. While organizations like NACCIMA are withholding comments pending further clarification on the implementation framework, civil society groups and religious bodies have raised concerns.

The Nigerian Supreme Council for Islamic Affairs has requested adjustments to align the reforms with Shariah principles, while critics such as the Movement for Socialist Alternative argue that the bills still favor the wealthy through selective tax exemptions, missing an opportunity to address deep-seated inequality.

As the Senate prepares to consider the final two bills and align them with the House of Representatives’ versions, all eyes are on President Tinubu, whose assent will determine whether these reforms become law.

If signed, the legislation could reshape Nigeria’s tax landscape, improve revenue distribution, and position the country for long-term economic recovery amid current challenges like inflation and fiscal deficits.