RMAFC stands against new VAT revenue formula, says it breaches laws

RMAFC stands against new VAT revenue formula, says it breaches laws

By Jeffrey Agbo

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

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

On October 3, President Bola Tinubu urged the National Assembly to consider and approve the tax reform bills despite significant opposition. The proposed formula allocates 10% of VAT revenue to the federal government, 55% to states, and 35% to local governments. This represents a departure from the current formula, where the federal government receives 15%, states 50%, and local governments 35%.

Shehu argued that Section 162(2) of the 1999 Constitution (as amended) grants the RMAFC exclusive authority to determine the formula for equitable revenue sharing among federal, state, and local governments.

He emphasized that the commission’s constitutional mandate ensures fairness and justice in revenue allocation.

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.

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“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.