The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has strongly opposed the proposed value-added tax (VAT) sharing formula in the tax reform bills, citing constitutional breaches.
In a memorandum signed on Monday by Muhammad Shehu, chairman of RMAFC, the commission highlighted several legal, constitutional, and technical objections to the proposed bills.
The proposed tax bill suggests a VAT revenue-sharing formula of 10 percent to the federal government, 55 percent to the state, and 35 percent to the local governments. However, the current VAT revenue-sharing formula shows that the federal government takes 15 percent, states get 50 percent, and 35 percent goes to the local governments.
According to Shehu, the constitution grants RMAFC the sole authority to determine the formula for equitable revenue sharing among the three tiers of government. “Section 162(2) of the 1999 constitution (as amended) grants RMAFC the sole authority to determine the formula for equitable revenue sharing among the three tiers of government,” Shehu said.
“The mandate also includes ensuring that the formula reflects principles of fairness and justice.”
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Shehu emphasized that the proposed bills will bolster the commission’s efforts and the nation’s capacity for domestic revenue mobilization. However, he expressed concerns over the lingering debate on derivation in VAT allocation, which has sparked heated arguments among stakeholders.
“The proposed bills will significantly bolster the Commission’s efforts and the nation’s capacity for domestic revenue mobilization,” Shehu said.
“They will help integrate untapped revenue sources, including contributions from the informal sector, into the tax net. Additionally, these reforms will enhance Nigeria’s revenue-to-GDP ratio, positioning the country more favourably among nations with high fiscal performance.
“The Commission, therefore, expresses its full support for the proposed legislation and is confident it will serve as a pivotal step toward elevating Nigeria’s revenue generation and financing sustainable development.
“However, the lingering debate over derivation in Value Added Tax (VAT) allocation has raised significant concerns, sparking heated arguments among stakeholders.
“This memorandum outlines the commission’s position, emphasizing its constitutional mandate to ensure that VAT allocation adheres to the principles of fairness, justice, and equity, and highlighting why any arbitrary apportionment may be inappropriate and unconstitutional.”
The commission made several recommendations, including empowering the commission to finalize a VAT allocation formula in line with its constitutional mandate. Shehu also urged dialogue among federal, state, and local governments to secure consensus on the RMAFC’s formula, thereby reducing tensions and ensuring acceptance.
Additionally, the commission recommended implementing a system that tags VAT collections to end-user locations, using tools like electronic invoicing and transaction monitoring. Shehu also called for amending legislation to clarify derivation rules for interstate transactions.
“Reinforce the constitutional mandate of the RMAFC and discourage any legislative or executive measures that undermine its authority,” he said.
“Implement a system that tags VAT collections to end-user locations, using tools like electronic invoicing and transaction monitoring. Amend legislation to clarify derivation rules for interstate transactions.”
The commission warned that the proposed tax reform bills threaten national unity and constitutional harmony. RMAFC emphasized that adhering to its constitutional mandate can provide an equitable solution to revenue allocation disputes while safeguarding the principles of fairness and justice.
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