By Jeph Ajobaju, Chief Copy Editor
Value Added Tax fetched N495.39 billion in the first quarter of 2021 (Q1 2021) and N512.25 in the second quarter (Q2 2021), making a total N1 trillion generated for the treasury in the first half of the year ended June 30 (H1 2021).
However, federal collection of VAT is now in jeopardy with a court ruling on Tuesday that it is not constitutional for the Federal Inland Revenue Services (FIRS) to collect VAT or any other levy in any state in the country.
The ruling vindicates critics of federal revenue sharing formula which they say simply takes funds from Southern states to dole out to dependent Northern states, some of which get more money for producing little.
An editorial in The PUNCH published on August 21, 2017 articulates the injustice in the structure, which the Federal High Court in Port Harcourt highlighted in the ruling on Tuesday. Both the editorial and the court ruling are reproduced below.
The National Bureau of Statistics (NBS), which released the latest VAT figures, said the N495.39 billion in Q1 2021 is 3.2 per cent higher than N327.2 billion made in Q2 2020 Quarter-on-Quarter (QoQ) and 56.56 per cent Year-on-Year (YoY).
In Q2 2021, Local Non-Import VAT was N187.43 billion, Foreign Non-Import VAT (N207.69 billion), and Nigerian Customs Service Import VAT (N117.13 billion), according to the report, published by The PUNCH.
VAT yield by sector
· Manufacturing – N44.89 billion
· Professional Services – N29.30 billion
· Commercial and Trading – N21.96 billion
· Textile and Garment – N77.74 million
· Pioneering and Pharmaceutical – N169 million
· Soaps and Toiletries – N188.71 million
FIRS can’t collect VAT in Rivers, court rules
On Tuesday, the Federal High Court in Port Harcourt ruled that the Rivers State Government should collect VAT and Personal Income Tax (PIT) in the state, not the Federal Inland Revenue Services (FIRS).
The lawsuit was filed by the state Attorney General against the FIRS and the federal Attorney General.
Justice Stephen Pam issued an order of perpetual injunction restraining the FIRS and the federal AG from collecting and intimidating residents of Rivers State to pay to VAT and PIT to the FIRS.
The judgment was contained in a statement issued by Kelvin Ebiri, Media Aide to Governor Nyesom Wike, as reported by The PUNCH.
Among the reliefs sought by Rivers is a declaration that the constitutional powers of the federal government to impose taxes and duties are limited to items listed in items 58 and 59 of Part 1 of the second schedule of the Constitution.
The court granted all the 11 reliefs sought by the state government, ruling that
· There is no constitutional basis for the FIRS to collect VAT, Withholding Tax, Education Tax, and Technology Levy in Rivers or in any other state of the federation.
· The powers and competence of Abuja is limited to taxation of incomes, profits, and capital gains which do not include VAT or any other levy except those listed in items 58 and 59 of the Exclusive Legislative List of the Constitution.
Rivers State lead counsel Donald Denwigwe explained that the case was all about the interpretation of the Constitution.
FIRS lead counsel O. C. Eyibo said he would study the judgment and advise his client.
Here is the editorial published by The PUNCH on August 21, 2017
“Redressing injustice in VAT sharing
“Figures for this year’s [2017] Value Added Tax recently released by the government have once again exposed the contradictions in the Nigerian federation, where states that produce the wealth that sustains the country are hardly appreciated.
“Just as is the case with the country’s oil resources, the VAT figures reveal a warped system where some areas labour to produce the wealth, while others position themselves to grab the lion’s share of what is available for sharing.
“Many states get money simply for contributing practically nothing!
“According to the Finance Minister, Kemi Adeosun, Lagos State alone generates 55 per cent of the VAT collected in the country, followed distantly by the Federal Capital Territory, which chips in 20 per cent. This means the contribution from the remaining 35 states of the federation is just 25 per cent.
“Adeosun, at a meeting of the Progressive Governors’ Forum in Birnin Kebbi in Kebbi State, put the VAT returns from Rivers and Kano states at six per cent and five per cent respectively.
“And when Rivers’ and Kano’s total of 11 per cent is added to that of Lagos and Abuja, making it 86 per cent, it means the remaining 33 states jointly make a paltry contribution of just 14 per cent.
“In fact, Lagos has so much potential that the state government is realistically setting a target of making it the third largest economy in Africa. This is a state that accounts for 70 per cent of maritime trade in the country and hosts 60 per cent of industries that help generate the VAT that is shared among all the states.
“Aside from accounting for 86.2 per cent of Companies Income Tax in 2008, according to the Federal Inland Revenue Service, Lagos is also the manufacturing hub of Nigeria.
“The Acting President, Yemi Osinbajo, recently noted that all the 214 people who paid up to N20 million each as tax per annum were resident in Lagos. He went on to add that, of the 914 who paid between N10 million and N20 million tax, only two were resident outside Lagos. Those two are domiciled in Ogun State.
“Figures from the Manufacturers Association of Nigeria also indicate that the Ikeja Industrial Zone alone – not even the entire Lagos – accounted for 55 per cent of goods manufactured in the country in 2016. This also means sustenance of jobs for Nigerians from all parts of the country.
“However, the setting becomes very provocative when it comes to the sharing formula.
“For the month of February [2017], for instance, while Lagos got N6.14 billion, reports have it that Kaduna State, whose contribution was put at mere one per cent, got N4.23 billion, just as Kano and Rivers got N1.66 billion and N1.33 billion respectively.
“The question then arises, how did the state with one per cent contribution end up getting more than the bigger contributors? Where is justice in such a system?
“VAT, a tax levied on goods and services consumed, is shared among the three tiers of government, with the Federal Government taking 15 per cent, while the state and local governments share 50 per cent and 35 per cent respectively.
“With the present LG structure in the country, the Northern section of the country is placed at an unduly advantageous position because it has by far the greater number of LGAs. These are LGAs created based more on land mass than on human population.
“The country was deliberately structured that way during the military rule to give that part of the country an undue advantage when it comes to revenue distribution, not generation.
“An often cited example is that of Lagos and Kano states, which started off with the same number of LGAs at the 1967 state creation, only for Lagos to still remain at 20 LGAs while Kano, despite Jigawa State having been carved out of it, now has 44 LGAs.
“Even Jigawa, the sister state, boasts 27 LGAs, while efforts by Lagos State, which is indisputably the most populous in the country, to increase its number of LGAs have been met with deliberate frustration.
“Besides, when a bill came up at the Senate last year [2018], highlighting the special status of Lagos, it was promptly thrown out without senators batting an eyelid.
“Oluremi Tinubu, the sponsor of the bill, had sought the setting aside of one per cent of accruals to the Federal Government from the Consolidated Federation Account for the funding of the peculiar challenges of the state as a former capital of Nigeria.
“Those who threw out the bill conveniently forgot that an investment in Lagos is also an investment for Nigeria because Lagos, the economic capital of the country, has become a home to many Nigerians, regardless of their state of origin.
“Interestingly, when a bill for the creation of a North-East Development Commission came up at the same Senate that rejected the Lagos bill, it was overwhelmingly passed.
“The commission, ironically, will draw its funding for the next 10 years from VAT, the burden of which is borne chiefly by Lagos.
“The same attitude of contempt was displayed when the lawmakers slashed the budget proposal for the repair of the dilapidated Lagos-Ibadan Expressway.
“Added to this brazen injustice is the inclusion of the 12 Sharia practising Northern states in the sharing of VAT on alcoholic beverages. Hisbah, the Sharia law enforcement agencies in these states, regularly confiscate and destroy alcoholic drinks.
“In 2001, a group that called itself the Independent Sharia Implementation Committee destroyed more than 600 crates of assorted beer.
“On November 27, 2013, the Hisbah destroyed over 240,000 bottles of beer in Kano. In January 2015, the Kano State Hisbah Board said it destroyed 326,151 bottles of beer. This is outrageous.
“It is wrong and unjust for states to have an entitlement to a share of other people’s efforts rather than a reward for their own efforts.
“The reality of the present is that Lagos, as a former capital of the country and the economic livewire, deserves special treatment to continue to drive the economy.
“Many federal institutions and roads exist in the state which should not be abandoned. It is the treatment such as Lagos and the oil producing states of the country are facing today that is fuelling the ongoing campaign for the restructuring of the country.
“Wealth is not sitting there waiting to be shared; it must be constantly created. There is no way a country mounted on a tripod of injustice can stand; it will surely collapse unless urgent steps are taken to address these obviously dangerous contradictions.
“As the great American president, Abraham Lincoln, once said, there is no greater injustice than to wring your profits from the sweat of another man’s brow.”