The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has expressed strong opposition to the proposed Value-Added Tax (VAT) sharing formula in the controversial Tax Reform Bills, citing constitutional breaches.
This is contained in a memorandum signed by Chairman of RMAFC, Muhammad Shehu.
In October, President Bola Tinubu asked the National Assembly to consider and pass the Tax Reform Bills.
The four bills include Joint Revenue Board of Nigeria (Establishment) Bill, 2024 -SB.583; The Nigeria Revenue Service (Establishment) BILL, 2024- SB.584; The Nigeria Tax Administration Bill, 2024-SB.585; and the Nigeria Tax Bill, 2024 – SB.586.
The executive bills sponsored by the Senate Leader, Senator Opeyemi Bamidele have generated immense controversy across the nation, especially among the northern elite.
The proposed Tax Reform Bills recommended the new VAT revenue-sharing formula as: 10 percent to the Federal Government, 55 percent to the States, and 35 percent to the Local Governments.
This is opposed to the current formula of 15 percent to the Federal Government, 50 percent to the States, and 35 percent to the Local Governments.
In the memo, Shehu stated that the provisions of the Tax Reform Bills breach Section 162(2) of the 1999 Constitution (as amended) which grants RMAFC the sole authority to determine the formula for equitable revenue sharing among the three tiers of government.
The RMAFC boss extolled the virtues of the Tax Reform Bills but warned against breaching the constitution.
According to the commission, the proposed Tax Reform Bills threaten national unity and constitutional harmony.
Shehu said, “The proposed bills will significantly bolster the Commission’s efforts and the nation’s capacity for domestic revenue mobilization.
“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 made some recommendations to avoid the constitutional pitfalls.
He charged the Federal Government to 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.
The RMAFC boss said the Federal, State and Local Governments must secure consensus on the RMAFC’s formula, thereby reducing tensions and ensuring acceptance.
He recommended reinforcing the constitutional mandate of the RMAFC to discourage any legislative or executive measures that undermine its authority.
Shehu also recommended the implementation of a system that tags VAT collections to end-user locations, using tools like electronic invoicing and transaction monitoring, while amending legislation to clarify derivation rules for interstate transactions.
