The Effect of Value Added Tax on the Nigeria Tax System: A Conceptual Review of the Revenue Mobilisation, Allocation and Fiscal Commission, Abuja

Abstract

Abstract Value Added Tax (VAT) has, since its introduction in 1994, become one of the most significant sources of non-oil revenue within the Nigerian tax system, yet its administration continues to generate considerable legal, institutional and intergovernmental controversy. This paper presents a conceptual review of the effect of value-added tax on the Nigerian tax system, with particular reference to the statutory role of the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC), Abuja, in the mobilisation and equitable distribution of federally collected revenue. Anchored in the ability-to-pay and benefit theories of taxation and on the theory of fiscal federalism, the paper traces the legislative evolution of VAT in Nigeria from the Value Added Tax Decree of 1993 through the Finance Acts of 2019 to 2023, to the sweeping reforms introduced by the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025, which together establish the Nigeria Revenue Service and revise the statutory formula for VAT revenue sharing. The paper examines the persistent constitutional contestation over the competence to impose and collect VAT, most notably in Attorney-General of Rivers State v Federal Inland Revenue Service, and situates the Commission’s revenue allocation mandate within this contested fiscal federal architecture. It concludes that although VAT has consistently proved to be a buoyant and administratively efficient revenue instrument, its long-term contribution to a stable and equitable Nigeria tax system is constrained by unresolved constitutional ambiguity, weak enforcement capacity and the informal sector’s continued exclusion from the tax net. Recommendations for legislative, institutional and administrative reform are proposed.