…Says RMAFC Empowered By Nigeria’s Constitution To Allocate VAT
…FG Raises Tax Exemption Threshold For SMEs To N50m
The Revenue Mobilization, Allocation, and Fiscal Commission has cautioned the National Assembly and other stakeholders, urging them to refrain from subjecting Value Added Tax (VAT) allocation to arbitrary determination.
The commission stated that any decisions regarding VAT distribution must be aligned with its constitutional mandate, following the framework stipulated in Nigeria’s constitution.
In its Memorandum submitted to the National Assembly, the RMAFC called for a VAT allocation formula to be finalized by the commission, ensuring a fair and equitable approach for all tiers of government.
The warning comes in light of recent legislative proposals that could potentially undermine the commission’s role in determining how VAT revenue is shared.
VAT revenue is shared among the three tiers of government with 15 per cent for the Federal Government, 50 oer cent for the States, and 35 oer cent for Local Governments.
Disputes arose regarding the collection and administration of VAT, particularly between the Federal Government and some States, such as Rivers and Lagos, which advocated for States to administer VAT within their jurisdictions.
This recent controversies and judicial interventions by Rivers and Lagos States have reignited debates over whether the Value Added Tax formula should follow the derivation principle or remain a centrally administered consumption tax.
These disputes, rooted in disagreements between federal and state governments, have sparked broader discussions on fiscal federalism, equity, and constitutional governance in Nigeria.
Proponents of the derivation principle contend that VAT revenues should primarily benefit the states where taxable goods and services are consumed, while critics emphasize the importance of equitable redistribution to support weaker state economies and promote national cohesion.
This ongoing debate has brought the role of the Revenue Mobilisation Allocation and Fiscal Commission into the spotlight.
In the document obtained by THE WHISTLER, the Commission raised key concerns and emphasized that VAT allocation should be subject to its framework, which is enshrined in Nigeria’s constitution, rather than arbitrary decisions from the VAT Act or any proposed amendments.
This principle, the Commission added, is crucial for maintaining national unity and preventing potential discord.
The commission urged for dialogue between federal, state, and local governments to ensure broad consensus on the VAT allocation formula.
By fostering discussions, the RMAFC said it believes tensions can be reduced, ensuring that all stakeholders accept the final formula.
The RMAFC also warned against any legislative or executive actions that could undermine its constitutional authority, and reinforced that it must retain the exclusive power to finalize the VAT revenue-sharing formula.
The document reads in part, “Empower RMAFC to finalize a VAT allocation formula in line with its constitutional mandate, ensuring an equitable approach for all stakeholders.
“Reinforce that VAT allocation is subject to the RMAFC’s framework and not arbitrary determinations as stipulated in the VAT Act or the proposed bill which is threatening the unity of the country.
” Foster dialogue among the federal, state, and local governments to secure consensus on the RMAFC’s proposed formula, reducing tensions and ensuring broad acceptance.
“Reinforce the constitutional mandate of the RMAFC and discourage any legislative or executive measures that undermine its authority.
Adopt digital tracking systems: Implement a system that tags VAT collections to end-user locations, using tools like electronic invoicing and transaction monitoring. Amend legislation to clarify derivation rules for interstate transactions.
“VAT remains a critical revenue stream for all tiers of government, and its allocation must adhere to constitutional provisions to prevent inequities and national discord. By affirming the RMAFC’s role in determining the VAT revenue-sharing formula, the legislators would have demonstrated commitment to constitutional governance and equitable fiscal management.
“VAT is one of Nigeria’s major revenue sources, vital to the fiscal stability of all tiers of government. Resolving the derivation issue through a constitutionally grounded and equitable formula will enhance national unity, promote fairness, and reinforce trust in the revenue-sharing system.”
This is just as the Federal Government has raised the tax exemption threshold for Small and Medium Enterprises (SMEs) to N50m. This move aims to provide greater relief to smaller businesses, fostering growth in the sector.
According to a statement signed by the management of the Small and Medium Enterprises Agency of Nigeria (SMEDAN), Director General Charles Odii will embark on a sensitization tour to engage Small Business Owners nationwide on the implications and opportunities of the proposed Tax Reform Bills.
This exercise builds on earlier efforts that contributed to the drafting and submission of the Bills. The objective is to provide clarity, dispel misconceptions, and foster a better understanding among key stakeholders, including local administrators.
The engagement will kick off with a breakfast meeting in Lagos, featuring representatives from Business Membership Organizations (BMOs) and other associations. Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, will lead a key session during the meeting.
“We want SMEs to fully understand the implications of these Bills and be adequately represented in the ongoing legislative process. Our priority is for SMEs to reap its full benefits, which will ultimately boost the economy, given that they are the engine of growth.
“Proposals such as the consolidation of taxes, elimination of nuisance levies, expansion of exemptions, and zero VAT on exports and essential goods reflect the true wishes of SMEs as identified during previous engagements and surveys,” Odii emphasized.
Odii further stressed the importance of understanding enforcement mechanisms, adding that SMEs need to understand what enforcement would look like if the Bills are passed, to ensure they are not denied the benefits intended for them.
With over 90 oer cent of businesses in the country and more than 80 per cent of employment dependent on SMEs, it is crucial to eliminate arbitrary taxes that increase operational costs, as proposed by the Bills, to ensure SMEs can hold relevant authorities accountable for proper implementation.
The DG said the engagement sessions would help dispel misinformation and fear-mongering surrounding the Bills, ensuring productive and informed discussions. He commended the Presidential Fiscal Policy and Tax Reforms Committee for its commitment to dialogue and prioritizing SMEs, which drive growth and prosperity.
Tax Reform Bills: Don’t Subject VAT Allocation To Arbitrary Determination, RMAFC Warns NASS, Others is first published on The Whistler Newspaper