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RMAFC Opposes Nigeria’s Proposed VAT Sharing Formula, Cites Constitutional Breaches

RMAFC Opposes Nigeria’s Proposed VAT Sharing Formula, Cites Constitutional Breaches

The Revenue Mobilization Allocation and Fiscal Commission (RMAFC) has raised objections to the value-added tax (VAT) sharing formula proposed in President Bola Tinubu’s tax reform bills, arguing that the provisions contravene Nigeria’s constitution.

In a memorandum signed by Muhammad Shehu, the commission’s chairman, RMAFC outlined a range of constitutional, legal, and technical concerns, asserting that the proposed changes violate Nigeria’s 1999 Constitution.

President Tinubu presented the tax reform bills to the National Assembly on October 3, urging lawmakers to pass them swiftly despite significant pushback from stakeholders. Central to the controversy is the new VAT sharing formula, which proposes allocating 10 percent of VAT revenue to the federal government, 55 percent to state governments, and 35 percent to local governments.

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This is a departure from the current arrangement, which allocates 15 percent of VAT revenue to the federal government, 50 percent to states, and 35 percent to local governments. While the proposed changes are intended to empower states with greater financial autonomy, RMAFC has expressed grave concerns over what it describes as the arbitrary nature of the reforms.

In its memorandum, the commission stated that Section 162(2) of the 1999 Constitution grants it the sole authority to determine equitable revenue-sharing formulas among the three tiers of government. Muhammad Shehu emphasized that RMAFC’s constitutional mandate includes ensuring that revenue-sharing arrangements adhere to principles of fairness, justice, and equity.

Although the RMAFC acknowledged that the entire tax reforms bills will boost Nigeria’s economic growth, and expressed support for it, the commission opposed the VAT sharing formula.

Speaking about the tax reform bills, it 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 favorably 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, Shehu argued that the proposed bills bypass this mandate and risk undermining the commission’s role as a key player in Nigeria’s fiscal framework. He explained that the formula must be developed through a thorough and inclusive process to reflect the diverse needs and circumstances of the country.

“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.

The commission also highlighted that the lingering debate over VAT derivation—how VAT is allocated based on where it is generated—has created significant tensions among stakeholders. RMAFC warned that adopting an arbitrary formula, such as the one proposed in the reform bills, could exacerbate these divisions, threatening national unity and constitutional harmony.

RMAFC has called for the federal government to empower the commission to finalize a VAT allocation formula that aligns with its constitutional responsibilities. The commission insists that any legislative or executive measure undermining its authority would be detrimental to Nigeria’s fiscal integrity.

Shehu proposed adopting modern tools like electronic invoicing and transaction monitoring to ensure VAT collections are tied to end-user locations. Additionally, he called for legislative amendments to address derivation issues in interstate transactions.

RMAFC’s intervention is a response to broader concerns about the potential implications of the tax reform bills. While the reforms aim to boost Nigeria’s revenue-to-GDP ratio and integrate untapped revenue sources, such as contributions from the informal sector, the commission warns that rushing the process could lead to unintended consequences.

The commission’s position has placed it at odds with the administration’s push for reform, making it the only government institution to challenge the new VAT-sharing formula. This highlights the complexities of balancing fiscal reforms with constitutional obligations and the diverse interests of Nigeria’s federating units.

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