Before States’ Collection Of VAT Does More Harm Than Good

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The excitement which swept across parts of the country after Rivers State’s victory over the Federal Inland Revenue Service (FIRS) at the court of first instance regarding the collection of Value Added Tax (VAT) is understandable. This is because the judgment is like a quantum leap towards fiscal federalism or restructuring which most Nigerians have been clamoring for in recent times.

Justice Stephen Dalyop Pam of the Federal High Court, Port Harcourt, while delivering a landmark judgment on August 9 in Suit No. FHC/ PH/CS/149/2020, filed by the Attorney General for Rivers State (plaintiff), against the FIRS (first defendant) and the Attorney General of the Federation (second defendant), had ruled that allowing the Federal Government, through the FIRS, to continue collecting VAT will be negating the spirit of the federal system of government being practiced.

The judge reiterated this position while ruling on Tuesday, September 7, in the stay of execution suit filed by the FIRS, ruling that granting such will amount to a negation of the principle of equity. But the wind was momentarily off the sail of this revolution when the Court of Appeal sitting in Abuja on Friday ordered the Rivers and Lagos State governments to stay action on their bids to collect VAT pending the resolution of the legal dispute on the matter.

Before States' Collection Of VAT Does More Harm Than Good

The FIRS is poised to pursue the matter all the way to Supreme Court. It had in a letter addressed to the Chairman of the House Constitution Review Committee, urged the legislature to vest exclusively in it all adjudication of tax disputes, including federal tax laws, Companies Income Tax, Petroleum Tax, Income Tax, Capital Gain Tax, Stamp Duty, VAT, taxes, levies, and other laws, regulations, proclamations, government notices and rules.

The letter, with reference number FIRS/EC/CWREP/0416/21/037, which was received on July 2 by the office of Wase, who is also the Deputy Speaker of the House of Reps, was titled, ‘Request for sponsorship of a bill for the establishment of the proposed Federal Revenue Court of Nigeria and the insertion of Value Added Tax under item 58 of the exclusive legislative list’.

The federal tax agency had before now pushed for companies and businesses in Rivers to continue remitting VAT to it while the state government insisted on proceeding with full implementation of the extant state’s VAT. Put in context, collectibles by the FIRS are shared among the three tiers of government, with the Federal Government taking 15 per cent, states 50per cent; local governments 35 per cent. This shows the Federal Government taking a huge chunk because when the 50 per cent for sub-nationals is shared among the 36 states, each state only gets a paltry sum. Ditto for 774 local government councils that share 35 per cent.

This notwithstanding, the sharing formula among states is so skewed that states where the bulk of VAT revenue is derived receive pittance when juxtaposed with what they bring to the till or get almost the same with states whose contributions are far less. According to Governor Nyesom Wike, his state generated N15bn VAT revenue in June this year, but got N4.7bn in return, while Kano State generatedN2.8bn in the same month and got the same N2.8bn back.

The Rivers Governor further cited an example with Lagos State where N46.4bn was collected from the nation’s commercial capital in the same month but the Federal Government gave LagosN9.3bn. It is, therefore, not surprising that Governor Wike assented to the Rivers State Value Added Tax Law 2021 after its passage by the state House of Assembly in August. Lagos State immediately followed with Governor Babajide Sanwo-Olu promptly appending his signature after the Lagos State House of Assembly passed the state’s Value Added Tax Bill. There are reports that states like Ogun and Akwa Ibom are on the verge of doing the same.

Having observed that many Nigerians are over the moon about the judgment of the Federal High Court in Port Harcourt, Naija News makes haste to urge them to prepare for the responsibilities which states’ collection of VAT places on them. As the enactment of VAT laws catches on among governors with buoyant economies, they must bear in mind that the attendant increase in revenue requires them to be more alive to their responsibilities.

The increased revenue at their disposal must not become slush funds for embezzlement or profligacy, neither must it be expended as mouth-watering pension benefits to outgoing governors, deputy governors, and house speakers. With the whopping amount to be raked in by Lagos State, for instance, the state must not remain the most indebted state in the country neither should it continue to have dilapidated infrastructure and deplorable inner-city roads.

Ahead of this takeover of VAT collection by states, we demand probity and accountability from the benefitting state governments and their officials. It is common knowledge that most citizens do not know the actual amount that accrues to their states as internally generated revenue. The people appeared satisfied with whatever amount quoted by their governors. This must change in the new era and it is left for the citizenry to enforce this change. It must never be heard that governors after collecting VAT, continue to owe the workers’ salaries or beg the Federal Government for a bailout.

The Federal Government has always been in focus due to the humongous resources it controls. Now that the balance is tilting in favour of the states, the populace must also subject governors and state officials to the kind of scrutiny the Federal Government has been subjected to. Indeed, now is the time for citizens to care about “taxpayers’ money” and how they are managed. Naija News categorically calls on civil society organizations to get set to look into the books of the various state governments, monitor the quality of governance they render, and blow the whistle where necessary.

Above all, it bears making the point that VAT, which is a consumption tax paid when goods are purchased and services are rendered, is currently charged at the rate of 7.5 per cent. Nigerians must be vigilant to avert a situation where governors in cohort with the state legislatures arbitrarily hike the VAT rates in their states. This will be a recipe for chaos and impoverishment of the poor masses.

We also hope that the collection of VAT won’t make governors lazy not to explore productive means of boosting the economy of their states. Governors grumbling that the takeover of VAT collection by states leaves them with the short end of the stick should be inspired to turn their states into production and consumption hubs with high VAT returns in tow. Our foregoing submissions are basically so that this win for fiscal federalism, which Justice Pam’s declarative verdict represents, doesn’t turn out to be pyrrhic after all.


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