The federal government is proposing new tax reforms aimed at eliminating levies for the Tertiary Education Trust Fund, the National Information Technology Development Agency, and the National Agency for Science and Engineering Infrastructure.
Currently, the TETFUND levy stands at three per cent of profits for all companies, excluding small businesses with turnovers of less than N25 million, according to THISDAY.
Meanwhile, NITDA imposes a one per cent levy on the profits of banks, financial institutions, insurance companies, GSM service providers, telecommunications companies, and pension-related entities with turnovers of N100 million and above.
NASENI currently collects a 0.25 per cent levy on profits before tax from banks, mobile and telecommunications companies, as well as sectors like ICT, aviation, maritime, and oil and gas, provided their turnover exceeds N100 million.
Under the proposed tax reforms, these existing levies would be replaced by a new development levy of four per cent on profits for all companies starting in 2025, excluding small businesses and non-resident companies.
According to the document reviewed, the levy would be reduced to three per cent between 2027 and 2029, and further to two per cent in 2030.
The proposed development levy would be distributed among TETFUND, NITDA, NASENI, and the Student Loan Fund in 2029.
Starting in 2029, the two per cent tax from the proposed development levy will be exclusively allocated to student loans, effectively phasing out TETFUND, NASENI, and NITDA as government agencies due to the loss of their funding sources.
In addition to these changes, the federal government plans to increase the Value Added Tax from the current 7.5 per cent to 10 percent by January 2025, as part of broader tax collection reforms.
The Federal Inland Revenue Service has also proposed raising the consumption tax to 12.5 per cent by January 2026 and to 15 per cent by 2030.
The government is also planning to introduce a five per cent excise tax on telecommunication services.
Furthermore, the proposed VAT increase includes a revision of the revenue distribution template among different tiers of government.
The new distribution pattern suggests allocating 10 per cent to the federal government (down from 15 per cent), while states would receive 55 percent and local governments, 35 per cent.
As a result, states are anticipated to receive an additional five per cent from the VAT increase.
However, the allocation for the Federal Capital Territory remains unclear, as it currently receives one per cent from the federal government’s allocation.
These measures when adopted may enable Lagos State to receive over N1.8 trillion as VAT allocation in 2025, “assuming total VAT collection of N6 trillion, even if there was no rate increase but only a change in derivation and ceding of additional five per cent to states.”
“It is important to highlight that even at 20 per cent derivation, Lagos State and its Local Governments received the largest share of VAT,” the document noted.
For instance, the document noted that “Using the VAT shared from January to June 2024 (based on reports on website of National Bureau of Statistics), Lagos State received 11.5 per cent or N336 billion.
“This is because companies remit VAT using location of their head- quarters and tax office and not where the services and goods are consumed.
“At current trend, Lagos State and its LGs are on track to receive more than N650 billion from VAT in 2024.
“The closest State to Lagos in VAT receipt is Rivers State which received 4.4 per cent (N129.5 billion) from January to June 2024. FG was only slightly ahead of Lagos with 13 per cent allocation.”
