RMAFC, Tinubu Panel Differ on  VAT Allocation Formula

The Presidential Fiscal Policy and Tax Reforms Committee and the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) are at odds over the constitutional authority to manage and distribute Value Added Tax (VAT) revenues. Both entities advocate for tax reforms but differ sharply on constitutional interpretations and the implications for revenue sharing.

RMAFC’s Position: Defending Constitutional Authority

The RMAFC has asserted its constitutional role in determining revenue-sharing formulas, emphasizing that any deviation undermines its authority. In a memo to the National Assembly, the commission referenced Section 162(2) of the 1999 Constitution, which empowers it to create equitable sharing formulas for the three tiers of government.

The memo stated, “The RMAFC remains the sole arbiter for crafting allocation formulas that ensure fairness and equity among all tiers of government. Any attempt to bypass this authority risks violating the Constitution and jeopardizing national unity.”

The commission also argued that VAT, as a consumption tax, should support less economically developed states, fostering cohesion and stability across the federation.

Tinubu Panel’s Counterargument: VAT as a State Tax

Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, countered the RMAFC’s stance, describing VAT as a state tax predating the 1999 Constitution. In a statement shared on X (formerly Twitter), Oyedele noted that VAT operates as a residual matter under state jurisdiction. He explained:

“VAT is paid into a special pool account, separate from federal revenues, and should not fall under RMAFC’s advisory purview regarding allocation formulas.”

Oyedele further highlighted that VAT distribution already leans towards states and local governments, with 85% allocated to these entities.

Historical Context and Current Sharing Formula

Introduced in 1993, VAT replaced the state-administered sales tax system to modernize Nigeria’s revenue framework. Initially set at 5%, the VAT rate increased to 7.5% in 2020 to boost non-oil revenues. Under the current sharing structure, 15% of VAT revenue goes to the Federal Government, 50% to states, and 35% to local governments.

However, states like Rivers and Lagos have criticized the system, advocating for a derivation-based model where revenues reflect consumption within states.

RMAFC’s Concerns About Proposed Reforms

In its memo, the RMAFC expressed reservations about the application of the derivation principle to VAT. The commission argued that equitable sharing is essential to supporting weaker states and warned that changes could threaten national unity. It also cited the lack of digital infrastructure as a significant challenge in tracking VAT consumption accurately across states.

Oyedele’s Rebuttal on Administration and Technology

Oyedele dismissed claims about technology barriers, emphasizing that current input-output VAT mechanisms suffice. He also clarified misconceptions about revenue-sharing formulas, stating:

“Horizontal VAT distribution among states is based on 20% derivation, 50% equality, and 30% population—not the 50-35-15 formula cited by the RMAFC.”

Additionally, he warned that decentralizing VAT collection would lead to significant revenue losses for states and disrupt interstate commerce, referencing challenges from the old sales tax regime.

Proposed Solutions

Both the RMAFC and the Presidential Committee have called for constructive dialogue to resolve the VAT allocation dispute. Suggested measures include:

1. Developing a VAT formula that balances equity, derivation, and consumption.

2. Engaging stakeholders across all government levels.

3. Amending VAT laws to address ambiguities.

4. Enhancing digital infrastructure to improve transparency and accountability in VAT collection and allocation.

VAT Revenue Growth Amid Economic Challenges

Recent data from the National Bureau of Statistics (NBS) reveals a sharp increase in VAT collections. In the first nine months of 2024, VAT revenue reached ₦4.77 trillion—a 95.76% rise compared to ₦2.44 trillion in the same period in 2023. The surge has been attributed to naira devaluation, inflation, and improved tax compliance.

Breaking down the figures:

Q1 2024: ₦1.43 trillion (nearly double Q1 2023’s ₦709.59 billion).

Q2 2024: ₦1.56 trillion (up from ₦781.35 billion in Q2 2023).

Q3 2024: ₦1.78 trillion (surpassing ₦948.07 billion in Q3 2023).