The controversial tax reform bill has been challenged by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC).
They challenged the constitutionality of the proposal made by President Bola Tinubu, arguing that the Commission is the only body constitutionally empowered to determine revenue sharing between the three tiers of government in Nigeria.
RMAFC is said to have submitted a nine-page memorandum in which it opposed the tax reform proposals as submitted to the National Assembly by President Tinubu.
According to Economic Confidential, the memorandum, signed by the commission’s chairman, Mohammed Bello Shehu, outlined a range of legal, constitutional, and technical objections to the proposed reforms.
“The Constitution designates RMAFC as the final authority on matters of revenue allocation,” the memorandum stated. “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.”
RMAFC called on the government to respect its role as the exclusive arbiter in developing fair revenue allocation formulas, 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 called for an approach to Value Added Tax (VAT) allocation that accounts for the unique nature of VAT as a consumption tax. It proposed a formula developed by RMAFC that would ensure equitable distribution among federal, state, and local governments.
The memorandum outlined the following points:
- Equitable Allocation Formula: VAT allocation and derivation should be based on a formula developed by RMAFC. This formula would consider VAT’s consumption-based nature, ensuring fairness in distribution.
- Recognition of Consumption Patterns: The formula would factor in consumption rather than merely production or the location of company headquarters, ensuring balanced benefits.
- Support for Weaker Economies: Special consideration would be given to states with weaker economies, promoting national cohesion and fairness across all tiers of government.
RMAFC concluded the memorandum with several recommendations. It urges the federal government to empower the Commission to finalize a VAT allocation formula in line with its constitutional mandate, reinforcing Constitutional Mandates by ensuring that VAT allocation strictly follows RMAFC’s framework, not arbitrary provisions in the VAT Act or the proposed reform bill.
The memo urges dialogue among federal, state, and local governments to secure consensus on the RMAFC’s formula, thereby reducing tensions and ensuring acceptance.
The memo also cautions legislative or executive measures that undermine RMAFC’s authority and advocates implementing systems like electronic invoicing to tag VAT collections to end-user locations, enhancing transparency and accuracy.
The Commission warned that the proposed tax reform bill threatens national unity and constitutional harmony. By adhering to its constitutional mandate, RMAFC believes it can provide an equitable solution to revenue allocation disputes while safeguarding the principles of fairness and justice.
