The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) has insisted that it is its remit to produce formulae for sharing revenues, including the Value Added Tax (VAT).
In a memorandum submitted by the Commission to the National Assembly on the ongoing debates on the Tax Reform Bills, RMAFC cautioned against amending the VAT sharing formula without its constitutional input.
The National Assembly is deliberating on four proposed bills under the Tax Reform and Fiscal Policy Bill.
Insisting on its exclusive constitutional authority to determine revenue-sharing formula, RMAFC said: “Only the RMAFC has the mandate to produce formulae for sharing revenues, including VAT. Any deviation from this constitutionally backed process is both inappropriate and potentially unconstitutional.”
One of the proposed bills seeks to allocate 10 per cent of VAT revenue to the federal government, while states and local governments would share the remaining 90 per cent.
Reacting to the bill, RMAFC warned against arbitrary changes to the VAT formula, noting that such actions could violate constitutional provisions and undermine its role as the impartial arbiter of revenue allocation.
“Arbitrary apportioning of percentages for VAT allocation, whether vertically among the tiers of government or horizontally among states and local governments, is both impractical and unconstitutional,” the Commission stated.
The RMAFC also pointed out the risk of public perception issues, particularly claims of bias toward states with higher production or corporate presence, which could undermine national unity and equity.
It maintained its authority under Section 162(2) of the 1999 Constitution (as amended), which empowers it to develop formulas for equitable revenue sharing among the federal, state, and local governments. It warned that attempts to bypass this mandate would contravene the Constitution.
“The Constitution, being supreme, does not envisage that any other Act of Parliament, such as the VAT Act, could assume this responsibility,” the Commission argued.
To address the contentious VAT sharing debate, the RMAFC proposed the following:
•VAT allocation and derivation should be based on a formula developed by the RMAFC, reflecting VAT’s unique nature as a consumption tax and ensuring equitable distribution.
•The formula should account for consumption patterns and provide support to states with weaker economies, promoting national cohesion.
•Implement tools like electronic invoicing and transaction monitoring to link VAT collections to end-user locations.
- Amend legislation to clarify derivation rules for interstate transactions and foster collaboration among the federal, state, and local governments to secure consensus on the RMAFC’s proposed formula.
Currently, VAT revenue is shared in the ratio of 50 per cent to states, 35 per cent to local governments and 15 per cent to the federal government.
However, disputes could arise, with states like Lagos and Kano arguing for derivation rights based on collection and consumption patterns, respectively, the RMAFC argued.
The commission commended President Bola Ahmed Tinubu for his innovative leadership in enhancing Nigeria’s revenue base and expressed support for the four proposed bills, noting their potential to significantly boost domestic revenue mobilization.
“The proposed bills will help integrate untapped revenue sources, including contributions from the informal sector, into the tax net, enhancing Nigeria’s revenue-to-GDP ratio,” the commission stated.
It added that the reforms would strengthen Nigeria’s fiscal stability and facilitate sustainable development, reaffirming its readiness to support the federal government’s efforts to reposition the country’s economy.
