RMAFC Opposes New VAT Revenue Formula, Cites Constitutional Breach

RMAFC opposes new VAT revenue formula, cites constitutional breach

by Aremu Adebayo

The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has opposed the value-added tax (VAT) sharing formula proposed in the tax reform bills, citing constitutional breaches.

RMAFC, in a memorandum signed by Muhammad Shehu, chairman of RMAFC, highlighted a range of legal, constitutional, and technical objections to the proposed bills.

On October 3, President Bola Tinubu asked the national assembly to consider and pass the tax reform bills – despite pushbacks.

In the proposed tax bill, the VAT revenue-sharing formula suggested is 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.

“CONSTITUTION GRANTS RMAFC SOLE AUTHORITY TO DETERMINE VAT FORMULA”

In the memo, Shehu said 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.

He added that the mandate also includes ensuring that the formula reflects principles of fairness and justice.

“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.”

Shehu further said RMAFC plays a crucial role in Nigeria’s fiscal framework, ensuring an equitable revenue-sharing formula among the three tiers of government.

He, therefore, highlighted several recommendations.

According to Shehu, the federal government should empower the commission to finalise a VAT allocation formula in line with its constitutional mandate, reinforcing constitutional mandates by ensuring that VAT allocation strictly follows RMAFC’s framework, not arbitrary provisions in the VAT Act or the proposed reform bills.

Shehu also urged dialogue among federal, state, and local governments to secure consensus on the RMAFC’s formula, thereby reducing tensions and ensuring acceptance.

“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 said in adhering to its constitutional mandate, it believes it can provide an equitable solution to revenue allocation disputes while safeguarding the principles of fairness and justice.