Tax Reform Bills: RMAFC Challenges VAT Sharing Formula Over ‘Constitutional Violations

Tax Reform Bills: RMAFC Challenges VAT Sharing Formula Over ‘Constitutional Violations

The Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) has strongly opposed President Bola Tinubu’s contentious tax reform bills…READ MORE…

which are currently being reviewed by the National Assembly, citing potential breaches of the Constitution.

In a detailed nine-page memorandum signed by its chairman, Mohammed Bello Shehu, the RMAFC outlined various legal, constitutional, and technical concerns regarding the proposed legislation.

The commission asserted that Section 162(2) of the amended 1999 Constitution grants it exclusive authority to establish a fair revenue-sharing formula among the three tiers of government, with a focus on principles of fairness and justice.

Shehu stated, “These proposed bills hold significant potential to enhance the Commission’s efforts and strengthen the nation’s capacity for generating domestic revenue. They aim to incorporate previously untapped revenue sources, particularly from the informal sector, into the tax system. Furthermore, these reforms could improve Nigeria’s revenue-to-GDP ratio, positioning it more favorably among countries with strong fiscal performance.”

The Commission expressed its unwavering support for the proposed legislation, believing it would be a crucial step toward boosting Nigeria’s revenue generation and financing sustainable development.

However, the ongoing debate surrounding the derivation in Value Added Tax (VAT) allocation has raised significant concerns and ignited contentious discussions among stakeholders.

The memorandum emphasized the commission’s constitutional duty to ensure that VAT allocation aligns with principles of fairness, justice, and equity, arguing that any arbitrary distribution could be deemed inappropriate and unconstitutional.

Shehu highlighted the RMAFC’s vital role in Nigeria’s fiscal structure, which involves equitable revenue sharing among the three levels of government, and proposed several key recommendations.

To address the VAT sharing dispute, the RMAFC suggested creating a formula that accurately reflects VAT as a consumption tax, ensuring a fair distribution based on consumption patterns while also supporting economically disadvantaged states.

Additionally, the commission recommended the adoption of electronic invoicing and transaction monitoring systems to track VAT collections to their end-user locations, amending existing laws to clarify derivation rules for interstate transactions, and promoting collaboration among federal, state, and local governments to reach a consensus on the proposed formula.

The commission cautioned that the proposed tax reform bills could jeopardize national unity and disturb constitutional harmony.

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