VAT Revenue Battle: Fiscal Reform Committee and RMAFC Clash Over Allocation Rights
A fierce dispute over the administration and allocation of Value Added Tax (VAT) revenues has erupted between the Presidential Fiscal Policy and Tax Reforms Committee and the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC). At the heart of the conflict lies a constitutional debate, with both entities staking claims to the interpretation and control of VAT revenues critical to Nigeria’s fiscal framework.
The RMAFC insists that its constitutional mandate, as outlined in Section 162 (2) of the 1999 Constitution, grants it sole authority to determine revenue-sharing formulas among the three tiers of government. In a memo to the National Assembly, the commission warned against unilateral changes to the VAT allocation system, asserting that such moves could destabilise equitable revenue distribution.
“The Constitution does not envisage that any Act of Parliament, including the VAT Act, could usurp this responsibility,” the memo declared. “VAT must be distributed to ensure financial support for less economically developed states, fostering national cohesion and stability.”
Conversely, Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has challenged the RMAFC’s stance. Citing historical and legal contexts, Oyedele argues that VAT predates the 1999 Constitution and was initially designed as a state tax. He points out that the current allocation system, which directs 85% of VAT revenues to states and local governments, already reflects its nature as a consumption tax.
“The tax is not mentioned in the 1999 Constitution, making it a residual matter under the purview of the states,” Oyedele stated on social media. He further dismissed the RMAFC’s claims about technological limitations in tracking VAT consumption, asserting that existing mechanisms suffice for equitable distribution.
A System Under Strain
Introduced in 1993 to replace state-administered sales taxes, VAT has grown into a cornerstone of Nigeria’s revenue framework. Managed centrally by the Federal Inland Revenue Service, it contributes significantly to non-oil revenues, with receipts increasing sharply in recent years. In the first nine months of 2024 alone, VAT collections reached N4.77 trillion, a 95.76% surge compared to the same period in 2023, according to the National Bureau of Statistics.
However, the system has faced growing scrutiny. States like Rivers and Lagos, which contribute disproportionately to VAT collections, have long criticised the existing allocation model, advocating for a derivation-based approach.
The RMAFC remains adamant that a derivation-heavy formula could undermine the financial stability of weaker states and the country’s unity. It also highlighted administrative hurdles, such as insufficient digital infrastructure, which complicates the precise tracking of VAT consumption patterns.
Oyedele, however, rejected these concerns, advocating for decentralisation. “Decentralising VAT collection could lead to significant revenue losses for many states, disrupt interstate commerce, and heighten fiscal risks,” he cautioned.
Towards Resolution
Despite their disagreements, both sides agree on the need for dialogue. Proposed solutions include developing a VAT sharing formula that balances derivation, equity, and population considerations; clarifying ambiguities in VAT laws; and enhancing digital infrastructure for greater transparency.
As the National Assembly deliberates tax reform bills, the stakes in this constitutional and fiscal standoff remain high. The outcome could reshape Nigeria’s approach to revenue allocation, with profound implications for economic equity and governance across the federation.
