Title: Reconceptualising Horizontal Fiscal Federalism in Nigeria: A Critical Appraisal of the Place of Consumption Standard under the 2025 Tax Acts
Authors: Chioma Bernadine Nwankwo, BL, LL.B, LLM, PhD,
Volume: 10
Issue: 3
Pages: 94-98
Publication Date: 2026/03/28
Abstract:
The enactment of the Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA) 2025 represents the most significant paradigm shift in Nigeria's fiscal landscape since the return to democratic rule. Central to this reform is the reconfiguration of the Value Added Tax (VAT) sharing formula, designed to mitigate the "Headquarters Effect", a phenomenon in which revenue was disproportionately credited to states that housed corporate headquarters rather than to states where actual economic consumption occurred. This article provides a doctrinal and critical analysis of the transition from a production-based derivation model to a "Place of Consumption" framework. Drawing on the provisions of Chapter Six of the NTA 2025 and the administrative enforcement mechanisms established under Section 106 of the NTAA 2025, the study evaluates how the new 30% consumption-based sharing ratio reshapes horizontal fiscal federalism in Nigeria. The findings suggest that while the reform promotes fiscal equity by rewarding states with high consumer activity, it introduces significant administrative complexities regarding geographical tax attribution. The study concludes that the success of this "Consumption Tax" regime hinges on the Nigeria Revenue Service's (NRS) ability to leverage the newly introduced Electronic Fiscal System to prevent revenue leakage and inter-state tax disputes.