Tax reform: S/East Senate caucus seeks wider consultations
The South-East Caucus in the Senate has joined other stakeholders in the country calling for wider consultations on the controversial tax reform bills. The leader of the caucus, Senator Enyinnaya Abaribe (APGA, Abia South), disclosed this to newsmen after a closed-door meeting of senators from the region, held in his office at the National Assembly […]
south east senate
The South-East Caucus in the Senate has joined other stakeholders in the country calling for wider consultations on the controversial tax reform bills.
The leader of the caucus, Senator Enyinnaya Abaribe (APGA, Abia South), disclosed this to newsmen after a closed-door meeting of senators from the region, held in his office at the National Assembly complex in Abuja.
Senator Abaribe explained that senators from the zone were not against the bills, but wanted wider consultations before action.
Abaribe said: “As much as the entire senators from the South-east are not against the tax reform bills before both chambers of the National Assembly, we want wider consultations to be carried out on them.
“Specifically, we need to consult with our constituents across the 15 senatorial districts in the zone with our state governments and other critical stakeholders.
“We have read through the bills and want to share our knowledge with other stakeholders from the South-east zone for a much more equitable framework in the bills that would eventually be passed. We are not against the bills but need to consult with our people”, he stressed.
Last week, 16 senators from the South-south geopolitical zone said they were committed to working collaboratively with senators from the North and other stakeholders in fostering a legislative agenda that guarantees the peace, prosperity, and progress of the country.
In a communiqué signed by their Chairman, Senator Seriake Dickson and Senator Jarigbe A. Jarigbe, (Secretary) after their meeting on Wednesday, the senators backed the tax reform bills.
The communiqué read in part: “Recognising the importance of tax reforms in enhancing national revenue and fostering economic stability, we resolved to support the tax reforms bills.
“This support will be anchored on a comprehensive study and thorough evaluation of the content of the bills to ensure they align with the overall interest of Nigerians, particularly the well-being of the South-south region”, it said.
Daily Trust reports that before the endorsement of the bills by the South-south senators, Northern senators had in the same week called for the suspension of further legislative action on the bills, which recently passed second reading in the Senate.
The lawmakers made their demand during a meeting, citing potential adverse effects on northern states, if passed.
The House of Representatives had earlier announced suspension of debate on the bills due to public outcry and resistance from some northern lawmakers.
Senator Buba Umaru Shehu, All Progressives Congress (APC) Bauchi State, who revealed the outcome of the northern senators’ meeting in an interview with the BBC Hausa Service, said northern senators from both the ruling APC and the opposition parties agreed on the need to suspend action on the proposals.
‘Tax bills attempt to usurp RMAFC responsibilities’
In another development, a document seen by Daily Trust alleged that the framers of the tax reform bills are trying to usurp the powers of the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC).
The document said the RMAFC is the institution with the constitutional mandate to produce formula for sharing revenues, including Value Added Tax (VAT), adding that any deviation from this constitutionally backed process is both inappropriate and unconstitutional.
The document was reportedly sent to the National Assembly as a memo, but this newspaper could not independently confirm if the Senate and the House of Representatives have indeed received the memo.
The document said RMAFC’s Chairman, Dr. Mohammed Bello Shehu, made the disclosure in a memorandum to the Senate President, Godswill Akpabio and the Speaker of the House of Representative, Abbas Tajudeen.
A top government official also confirmed that a similar letter was received by President Bola Ahmed Tinubu, expressing the same concern.
The memorandum is coming on the heels of the controversy that has trailed the proposed change in the VAT distribution model, to a derivation-based model, which would reduce the federal government’s share from 15% to 10%.
Governors, Northern Elders, Civil Society Organisations (CSOs), traditional rulers, some federal lawmakers and many others have rejected the bills, saying they are not in the collective interest of the country.
In the memo to the parliament, the RMAFC said: “The Constitution, being supreme, does not envisage that any other Act of Parliament such as the VAT Act could assume this responsibility.
“Any such attempt would contravene the Constitution. Therefore, the RMAFC remains the sole arbiter in producing allocation formula that is fair, just, and equitable for the three tiers of Government. Any deviation from a formula crafted by the RMAFC risks violating constitutional provisions and undermining the Commission’s role as the impartial arbiter of revenue allocation in Nigeria”, it said.
Constitutional mandate of RMAFC
Section 162 (2) of the 1999 Constitution of the Federal Republic of Nigeria (as amended) empowers the RMAFC to determine the formula for the equitable sharing of revenue among the three tiers of government. Ensure that such formula reflects the principles of fairness and justice.
“The Constitution, therefore, made RMAFC the empire arbiter in matters of revenue allocation for the three tiers of government,” the document said.
It added that the memorandum outlines the Commission’s position, emphasising its constitutional mandate to ensure that VAT allocation adheres to the principles of fairness, justice, and equity, and highlighting why any arbitrary apportionment may be inappropriate and unconstitutional.
Concept of derivation
The memorandum argued that 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 recognised, notably in the allocation of oil revenues, where 13 per cent 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.
However, it noted that complexities arise in applying derivation principles to value-added taxes (VAT) due to the nature of VAT, which is consumption-based rather than origin-based.
It said the complexity in determining the taxpayer’s “residence” for derivation purposes arises when: Goods are purchased in one location and consumed in another. The seller and buyer operate across state boundaries and VAT reporting systems do not track the end-use location effectively.
It added that: “Arbitrary percentages may alienate certain tiers of government or regions, creating divisions and eroding trust in the revenue-sharing process.”
RMAFC recommendations to Presidency, NASS
The memo sighted by this newspaper called for the empowerment of RMAFC to finalise a VAT allocation formula in line with its constitutional mandate, ensuring an equitable approach for all stakeholders.
It also called for constitutional adherence which will 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.
It further called for stakeholder engagement to foster dialogue among the federal, state, and local governments to secure consensus on the RMAFC’s proposed formula, reducing tensions and ensuring broad acceptance.
The memo urged the leadership to avoid what it called “legislative overreach” and reinforce the constitutional mandate of the RMAFC and discourage any legislative or executive measures that undermine its authority.
The commission also called for the adoption of digital tracking systems by implementing a system that tags VAT collections to end-user locations, using tools like electronic invoicing and transaction monitoring.
It also wants a review of the VAT law to clarify derivation rules for interstate transactions.
It said: “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.”
Lawyers react
Speaking on the issue, Tawo Eja Tawo (SAN) said under Section 160(2), it is the RMFAC that is mandated to mobilise and disburse revenue while the role of the Presidential Committee on Fiscal Policy and Tax Reforms is only advisory.
He said the tax bill cannot be passed without input from the RMFAC, and that if that responsibility would be taken away from the commission, there has to be a constitutional amendment.
“As the name suggests, they have to mobilise revenue and they allocate,” he said.
Similarly, the Executive Director of the Centre for Social Justice (CSJ), Eze Onyekpere said the constitution mandates the RFMAC to handle matters of revenue.
He said the memo sent by the commission should not serve as a preliminary objection to the reform, rather it should create room for more inputs, which is left for the National Assembly to adjust or make amendments on.
“What I expect them to do is to look at it, work on it and bring forward either to confirm or say no,” he said.
By Sunday Michael Ogwu, Saawua Terzungwe & John Chuks Azu