Proposed Reforms May Eliminate Taxes for TETFUND, NITDA, NASENI, Others

*Lagos may receive N1.8tn as VAT allocation in 2025

James Emejo in Abuja

The new tax reforms currently being proposed by the federal government seeks to eliminate levies for the Tertiary Education Trust Fund (TETFUND), the National Information Technology Development (NITDA), and the National Agency for Science and Engineering Infrastructure (NASENI).

TETFUND levy is currently at three per cent of profits of all companies except small companies with turnover of less than N25 million.
On the other hand, NITDA takes one per cent of profits of banks and other financial institutions, insurance companies, GSM service providers and telecommunication companies, cyber companies and internet providers, pension managers and pension related companies, with turnover of N100 million and above.

Also, NASENI takes 0.25 per cent of profit before tax of banks, mobile and telecommunication, ICT, aviation, maritime, oil and gas sectors with turnover of N100 million and above.

However, under the proposed tax reforms, these taxes would be replaced with a development levy of four per cent of profits of all companies from 2025, with the exception of small companies and non-resident companies, according to a document seen by THISDAY.
Under the proposed regime, the four per cent levy would drop to three per cent between 2027 and 2029 and further down to two per cent in 2030.

The levy would be shared among TETFUND, NITDA, NASENI and Student Loan Fund in 2029.

However, from 2029, the two per cent tax would be exclusively for the student loans, implying that TETFund, NASENI and NITDA would be sunset as agencies of government since they will no longer have source of funding.

Also, as part of the reforms being advocated, the federal government intends to increase the Value Added Tax (VAT) to 10 per cent from the current 7.5 per cent by January 2025 amid sweeping reforms in tax collection.

According to the Federal Inland Revenue Service (FIRS), the proposed tax reforms template further suggested a hike in consumption tax to 12.5 per cent by January 2026, and 15 per cent by 2030.

It was further learnt that the government intends to impose a five per cent excise on telecommunication services.

The VAT increase proposal further seeks to change the revenue distribution template among the tiers of government.

The proposed template advocated a new distribution pattern of 10 per cent for the federal government from 15 per cent; 55 per cent to states and 35 per cent to the Local Governments (LGs).

Effectively, the states are expected to get extra five per cent in VAT while it remains unclear about the FCT allocation which currently has one per cent ceded to it out of the federal government’s allocation.

The reform also proposes that 60 per cent of VAT be shared based on derivation.
The current sharing is 20 per cent based on derivation.

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.”

It stressed that, “If 60 per cent is confirmed as the new derivation, then Lagos State and its Local Governments will receive at least 30 per cent of total VAT collected if the current derivation mechanism is used.

“Meaning, Lagos State and its LGs will receive more than 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 5 per cent to states.

“When this is combined with the proposed reduction in Companies Income Tax to 25 per cent and increase in the VAT rate, Lagos State and LGs in Lagos will see their revenue allocations almost triple at the expense of other states.

“Even at 20 per cent, the mechanism for attribution has to change to reflect where the goods and services are consumed.

“This will mandate significant services such as banks, electricity, telecommunications service providers etc and local manufacturers attribute the VAT collected to where the services and goods are consumed.”