By Jeph Ajobaju, Chief Copy Editor
Lagos and Rivers are firing off to collect Value Added Tax (VAT) based on the Port Harcourt Federal High Court judgment on August 9 that states are to collect VAT and Personal Income Tax (PIT), not the Federal Inland Revenue Service (FIRS).
VAT is a consumption tax on goods and services. The current rate is 7.5 per cent, a huge tax net that fetched more than N1 trillion into the federal treasury in the first half 2021 alone (H1 2021).
VAT yielded N495.39 billion in the first quarter of 2021 (Q1 2021) and N512.25 in Q2 2021, according to figures released by the National Bureau of Statistics (NBS).
Former Finance Minister Kemi Adeosun disclosed in August 2017 that 55 per cent of VAT was collected from Lagos alone and 45 per cent from the other 35 states and the Federal Capital Territory (FCT).
Lagos Information and Strategy Gbenga Omotoso said the state government would soon commence the implementation of the court judgment even if it has to send a bill to the House of Assembly to amend the law.
“We are aware of the judgment and we applauded it. In a federation, that is the way it goes. In our pursuit of true federalism, it is a giant step forward.
“And in fact, we have notified all our stakeholders about the judgment that the Lagos State Government will implement it,” Omotoso told The PUNCH.
“We are writing to all the stakeholders to let them know that this is a judgment we are going to obey to the letter.
“We are working on it. It is a matter of law. [It will commence] very soon except if we will be sending a bill to the House of Assembly to officially notify the Assembly about the judgment and adjust our own law that will compel those who pay VAT to the state government in obedience to the judgment.”
Lagos lawmakers on Thursday passed the VAT bill along with the bill against open grazing.
Wike signs VAT Bill into law
Rivers Governor Nyesom Wike has signed into law the bill that empowers the state to collect VAT, even as the FIRS has filed an appeal against the ruling and some Northern states say they prefer continued collection by the federal government.
Justice Stephen Pam, who made the ruling, also restrained the FIRS and the federal Attorney General from demanding VAT and PIT from Rivers residents, an order which also applies in all states.
VAT is charged on the supply of goods and services in Nigeria, including those imported, except items exempted in the VAT Act.
The Finance Act 2020, which took effect on February 1, 2020, raised VAT from 5 per cent to 7.5 per cent.
Total VAT collected by the FIRS in the 36 states and the Federal Capital Territory (FCT) is shared among the three tiers of government – federal 15 per cent, states 50 per cent, councils 35 per cent.
“We (Rivers State) are standing on the part of history as representatives of the state to have taken the bull by the horns to challenge the illegality of the federal government through the Federal Inland Revenue Services,” Wike said when he signed into law the VAT and other bills, per The PUNCH.
“In this Rivers State, we awarded contracts to companies and within the last month, we paid over N30 billion to the contractors and 7.5 per cent will now be deducted from that and to be given to the FIRS.
“Now, look at 7.5 per cent of N30 billion of contracts we awarded to companies in Rivers State, you will be talking about almost N3 billion only from that source.
“Now, at the end of the month, Rivers State government has never received more than N2 billion from VAT. So, I have contributed more through the award of the contracts and you are giving me less. What’s the justification for it?”
30 states may lose out
But some people have expressed unease about the court ruling because, according to tax experts, up to 30 states will face a huge drop in their revenue from federal allocation, the main source of revenue for many states.
Taiwo Oyedele, Fiscal Policy Partner and the Africa Tax Leader at PricewaterhouseCoopers, told The PUNCH that the biggest losers would be states, except Lagos.
“A few states like Kano, Rivers, Oyo, Kaduna, Delta and Katsina may experience minimal impact, while at least 30 states, which account for less than 20 per cent of VAT collection, will suffer significant revenue decline,” he added.
Most Northern states oppose court ruling
Some Northern states have also expressed their opposition to the court ruling because of its impact on their revenue and how it could worsen their shaky economy. Some have in the past relied on bailout from Abuja to pay salaries.
VAT has been a major contributor to the Consolidated Revenue Fund.
In 2020, total VAT collection was about N1.53 trillion – import VAT N348 billion, foreign non-import VAT N420 billion, and local VAT N763 billion, according to NBS data.
VAT in Q1 2021 was N496.39 billion against N324.58 billion in Q1 2020.
Plateau – FIRS handles collection best
Plateau Information Commissioner Dan Manjang insisted to The PUNCH that the federal government should continue to collect VAT as states benefit more when the FIRS handles it.
“How many industries do we have in Plateau State? There are not many. So, the position of the Plateau State government on VAT is that the federal government, through the FIRS, should continue to collect VAT on our behalf and thereafter remit the proceeds to us.
“We prefer it this way because we discovered that the amount that we will spend in collecting the VAT will be more than what we will get eventually,” Manjang said.
Gombe – states lack capacity to collect VAT
Gombe Internal Revenue Service Chaiman Abubakar Tata told The PUNCH that states lack the capacity to effectively collect VAT as consumption tax that states are allowed to collect is not done well.
Said he: “There are certain taxes that the federal government collects on behalf of the states because we have the Joint Tax Board [JTB] account where all the collection regarding Value Added Tax is paid into and later shared based on the allocation formula.
“If you allow state governments to begin to collect tax, will it be effective? After all, the states have consumption tax which is 5 per cent of what is consumed at restaurants, event centres and other services.
“At the moment, not all the states are collecting the consumption tax because of issues like capacity, enforcement and other issues surrounding tax administration at the lower level, particularly at the state level.
“If you strip the federal government of the power to compel any company or taxpaying entity operating in Nigeria to make the payment and you give the power to states, the level of collection we are seeing at the moment will not be the same.”
Tata questioned the decision of Rivers to challenge the collection of VAT in court, saying the state might not have effectively enforced consumption tax because of politics.
“At the moment, Gombe is implementing the new tax law in phases and we are distributing letters to all relevant taxpaying entities because we are expected to collect 5 per cent from the services they render and remit it to the Internal Revenue Service.
“We are, at the moment, raising awareness through the mass media.
“Assuming all states are collecting the consumption tax as it is enshrined in the state law then we can say we have the capacity and the legal framework to do it and remit the same to our Internal Revenue service.
“At the moment, we lack the capacity to execute that mandate because even the consumption tax, if you go to Rivers, go and find out how much they are able to collect under consumption tax.
“It’s for politics, somehow to overheat the polity and the economic stabilisation of the country as a whole.”
Borno – ruling leads to multiple taxation on a single item
A top Borno State government official, who spoke on condition of anonymity, said no state in the North would want the enforcement of the judgment because it would make the prices of goods rise beyond the reach of the people.
“The wisdom behind allowing the federal government to receive the taxes on behalf of the states at the point of entry through the then Federal Inland Revenue Agency was to normalise prices and distribute to all states through the Federal Accounts Allocation Committee after deducting 15 per cent.
“The general consensus among the states is that the judge that delivered that judgment did not have the complete information about the service because if he did, he would have understood the idea behind the federal government receiving the VAT,” he argued.
He stressed that if states were to collect their VAT, people, including the rich, would find things expensive to buy.
“For example, here in Borno State, if we are transporting trucks loaded with rice from Lagos down to Maiduguri, how many states will the trucks pass through before getting to Borno. If a truck refuses to pay VAT, that state will impound the truck.
“The states came together and discussed that all consumables should be charged uniformly and FIRS was appointed to collect the VAT and share among the states.
“We agreed on the percentage to be deducted by the federal government, which is 15 per cent and, considering the total amount being realised and shared, that percentage is small and negligible.”
Adamawa – wants to join Rivers in court
Adamawa Media and Communications Director General Solomon Kumanga said the state would like to be joined with Rivers should the federal government appeal the court judgment and the case proceeds to the Supreme Court.
“Anything to extend and improve on our IGR [internally generated revenue] is welcomed. So, we are keen on joining Rivers State government should the federal government appeal the judgment which granted Rivers State the right to collect VAT.
“That is because whatever will bring improvement in IGR is a welcome idea for a state like Adamawa just recovery from the ravages of insurgency,” he added.
“The truth is that the collection of VAT by the states is the only way to assist states who are heavily dependent on federal allocations to be able to wean themselves [off dependence] and meet their fiduciary obligations.
“So, if there are areas where revenues can be exploited and extended, surely the state government will welcome it.”
Katsina – appeals against court ruling
Katsina Governor Aminu Masari disclosed while receiving a delegation from the Federal Revenue Mobilisation Allocation and Fiscal Commission (FRMAFC) that the state has appealed the ruling.
“We have heard the judgment of the Federal High Court in Rivers and we have appealed against that judgment.
“It means people will begin to pay double VAT because if you pay VAT in Kano, at the point of departure, it means when you come to Katsina you pay another VAT,” he argued.
“If you pay VAT in Lagos, it means you also pay VAT all along the way until you reach your destination. It will bring a lot of burden on the people. That judgment is not fair.
“It is other parts of the country that make Lagos and Rivers States what they are. We have to work together as a nation and come up with something that will work for all of us.”
Niger – studies court ruling
“We are still studying the judgment and the decision of the state would be made public once a decision is taken on the matter; but for now, I cannot say much about it,” Niger Internal Revenue Service Executive Chairman Mohammed Etsu told The PUNCH
Secretary to the State Government Ibrahim Matane said he could not make any statement on it “because it is a matter that needs to be discussed at policy level.
“We are a federation and individual states would want to collect it by themselves but there are consequences to such a decision. This is a policy issue that needs extensive deliberation at the state executive level.”
Kaduna – studies court ruling
Kaduna Governor Nasir el-Rufai’s Media Assistant Muyiwa Adekeye said the state is studying the judgment.
He reiterated that the state remains “a champion of true federalism, anchored on significant devolution of powers and responsibilities to the states. Kaduna State has also focused intensely on expanding its internally generated revenue.
“The El-Rufai government has almost quadrupled IGR to N50.2billion in 2020, from N13 billion in 2015.
“The state government is still studying the VAT judgment to understand its details, impact and ramifications.”