The Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) has opposed President Bola Ahmed Tinubu’s controversial tax reform bills currently before the National Assembly for consideration.
RMAFC, in a comprehensive nine-page memorandum signed by its chairman, Mohammed Bello Shebi, rejected the principle of derivation over the exisitng system of VAT pooling among other legal, constitutional, and technical objections to the proposed legislation.
According to the document obtained by the Economic Confidential, RMAFC emphasized that it was empowered by Section 162(2) of the 1999 Constitution (as amended) to determine the formula for equitable revenue sharing among the three tiers of government. This mandate also includes ensuring that the formula reflects principles of fairness and justice.
“The Constitution designates RMAFC as the final authority on matters of revenue allocation,” the memorandum stated.
The Commission noted that “As such, no Act of Parliament, including the VAT Act, can infringe upon this constitutional responsibility. Any such attempt would constitute a violation of the Constitution.”
It further maintained that its role as the exclusive arbiter in developing fair revenue allocation formulas must be respected, arguing that any deviation from its constitutional duties could undermine the integrity of the Commission and compromise the principles of justice in revenue sharing.
The Commission, however, called for an approach to Value Added Tax (VAT) allocation that accounts for the unique nature of VAT as a consumption tax.
Reacting to the issue of derivation, the commission noted that VAT revenue is shared among the three tiers of government with 15% for the Federal Government, 50% for the States, and 35% for Local Governments.
It added that VAT is consumption-based, unlike oil revenue, where 13 percent is returned to the producing states.
“Derivation in fiscal federalism refers to the principle where revenue generated from a specific resource or activity is allocated to the jurisdiction (state or region) where it originated. In Nigeria, this principle is constitutionally recognized, notably in the allocation of oil revenues where 13% of revenue derived from oil is returned to oil-producing states, though different from the VAT derivation. It aims to ensure fairness and economic equity by compensating resource-originating regions for their contributions to the national purse,” the memorandum added.
Continuing, the RMAFC painted a scenario where goods purchased in Lagos (as a point of VAT collection) are consumed in Kano, adding that VAT laws in Nigeria do not provide a clear mechanism to track goods post-sale to the end-use location. “Without robust systems for monitoring consumption patterns, the allocation of VAT based on derivation becomes contentious.”
