RMAFC rejects new VAT sharing formula

Date:

The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has opposed the proposed value-added tax (VAT) revenue-sharing formula outlined in the recent tax reform bills, labelling it a breach of constitutional provisions.

In a memorandum signed by Muhammad Shehu, the chairman of RMAFC, the commission raised several legal, constitutional and technical objections to the proposed changes.

On October 3, President Bola Tinubu submitted the tax reform bills to the National Assembly, urging lawmakers to deliberate and pass them despite considerable opposition. The proposed VAT revenue-sharing formula allocates 10% to the federal government, 55% to states, and 35% to local governments. This marks a shift from the current structure where the federal government receives 15%, states 50%, and local governments 35%.

Shehu pointed out that Section 162(2) of the 1999 Constitution (as amended) grants RMAFC exclusive authority to determine revenue-sharing formulas among the federal, state, and local governments. This mandate, he argued, ensures that revenue distribution reflects fairness and equity principles.

In the memorandum, Shehu emphasised the importance of the proposed tax reforms in enhancing Nigeria’s domestic revenue mobilisation, integrating untapped revenue sources—especially from the informal sector—and boosting the nation’s revenue-to-GDP ratio. However, he noted that the contentious debate over derivation in VAT allocation raises significant concerns, highlighting the need for adherence to constitutional guidelines.

“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,” he said.

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.

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