The Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) has fiercely opposed President Bola Ahmed Tinubu’s controversial tax reform bills currently under consideration at the National Assembly.
In a nine-page memorandum signed by its chairman, Mohammed Bello Shebi, the Commission described the proposed legislation as unconstitutional and a threat to Nigeria’s unity.
The document, obtained by Economic Confidential, highlighted RMAFC’s legal, constitutional, and technical objections to the reform, particularly the introduction of a derivation principle in Value Added Tax (VAT) sharing.
“The Constitution designates RMAFC as the final authority on matters of revenue allocation,” the memorandum declared.
It emphasized that Section 162(2) of the 1999 Constitution (as amended) gives the Commission exclusive powers to develop a formula for equitable revenue sharing among the three tiers of government.
“Any Act of Parliament, including the VAT Act, that seeks to undermine this constitutional responsibility would constitute a violation of the Constitution,” it added.
The proposed reforms aim to allocate VAT revenues based on derivation, a system where revenue is distributed to the region or state where it originates.
RMAFC argued that such a system could disrupt the existing pooling arrangement, which currently allocates 15% of VAT to the Federal Government, 50% to states, and 35% to local governments.
The Commission warned that implementing derivation for VAT could create economic and political tensions.
“Without robust systems for monitoring consumption patterns, the allocation of VAT based on derivation becomes contentious,” it stated.
VAT, the memorandum explained, is a consumption tax, meaning it is paid by consumers at the point of purchase.
For instance, it highlighted a scenario where goods purchased in Lagos could be consumed in Kano, complicating the derivation principle without accurate tracking mechanisms.
“VAT laws in Nigeria do not provide a clear mechanism to track goods post-sale to the end-use location,” RMAFC noted.
The Commission stressed that VAT differs from oil revenue, where derivation is already applied.
Under the current system, 13% of oil revenue is returned to oil-producing states to compensate them for resource extraction.
“Derivation in oil revenue ensures fairness and economic equity,” the memo stated.
However, it added that VAT operates under a centralized pooling and redistribution framework, which is essential for national unity.
“VAT is a critical source of revenue for the Federation,” the memorandum emphasized.
RMAFC argued that prioritizing derivation over pooling could skew the system in favor of states with higher corporate presence or production activity, regardless of where consumption occurs.
“This undermines the principles of fairness and justice in revenue sharing,” it added.
The Commission also warned that the proposed reforms could lead to regional disparities, leaving less economically developed states with diminished resources.
“It is impractical and unconstitutional to arbitrarily apportion percentages for VAT allocation,” it stated.
RMAFC called on the federal government to allow it to finalize a VAT allocation formula that aligns with its constitutional mandate.
“Empowering the Commission to finalize the formula will strengthen constitutional harmony and prevent undue political tension,” it said.
The memorandum also urged the government to adopt technological solutions like electronic invoicing.
This, it argued, would enhance transparency by tagging VAT collections to end-user locations.
RMAFC further recommended dialogue between federal, state, and local governments to build consensus on revenue-sharing frameworks.
“Collaboration will reduce tensions and ensure acceptance of a unified VAT allocation formula,” the document suggested.
The Commission expressed concerns that the tax reform bills could undermine its authority and disrupt the revenue-sharing system.
“These bills threaten national unity and constitutional harmony,” it warned.
