October 16, 2021


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Experts dissect VAT controversy

By Omoniyi Salaudeen

The Federal Government’s resistance to agitation for restructuring appears to be running out of time as some states have joined hands with the Rivers State governor, Nyesom Wike, to explore the possibility of divesting the centre of some of its powers perceived to be promoting injustice through the judicial process.

For so long, those who have the courage to speak out their minds have said it that Nigeria can no longer stand on the existing quasi-unitary system foisted on the nation by the military with its inherent defects, lopsidedness and injustices.

But successive governments had always turned the deaf ear just in the same way the present administration of President Muhammadu Buhari has shown no readiness to heed the loud call for a return to true federalism. 

That prolonged hesitancy may have, however, run its full circle with the renewed agitation for fiscal federalism by some states following Wike’s bold initiative.

In its response to what it perceived to be injustice, the Rivers State Government in suit number FHC/PH/CS/149/2020 had filed a case against the Federal Inland Revenue Service (FIRS) and the Attorney General of the Federation over demands, threats and intimidation of the state residents to pay the Personal Income Tax (PIT) and Value Added Tax (VAT) by the tax agency.

According to Governor Wike, in June this year, Rivers State generated N15.7 billion VAT revenue, but got only N4.7billion, while Kano State which contributed N2.8 billion in the same month got the same N2.8 billion as its share of federal allocation.

Therefore, among other things, the state government prayed the court to declare that the power to collect VAT could only be exercised by the state or other authority of the state and no other person. 

In its ruling, the court presided over by Justice Stephen Pam directed the Rivers State Government to take charge of the collection of both taxes. The court further declared that the defendants were not constitutionally entitled to charge or impose levies, charges or rates, under any guise or by whatever name called, on residents of Rivers State and any state of the federation.

Accordingly, other states like Lagos, Ogun, Edo, and Akwa Ibom in a quick response to the ruling have joined the bandwagon to enhance their Internally Generated Revenue (IGR) capacity. As available reports show, Lagos State contributes no less than 55 per cent of VAT proceeds, which is why Governor Babajide Sanwo-Olu has asked to be joined in the litigation battle with Rivers State.

In pursuit of the case, Wike has taken the fight to the Supreme Court to challenge the Appeal Court order for a return to the status quo. 

From the point of view of legal experts, Wike’s bold initiative is a right step towards fiscal federalism though it is just one of the core items of restructuring.

There are so many other provisions of the law that the states can take advantage of to restructure the country and claim a large measure of autonomy and control over their resources and space from the oppressive centre.

A prominent Kano-born politician, Senator Rufai Hanga, amplifying this opinion, said:  “I prefer the state to collect VAT because it will give some headway to restructuring. It will compel the states to come up with initiative on how to raise Internally Generated Revenue instead of relying on the Federal Government for stipends. It is a welcome development. I hope other governors will follow suit.

“For us in Kano, we will put pressure on the governor to pursue it. Even those states that are termed as parasites have agricultural produce. They can charge VAT on what they produce. For example, corn is produced in most of the Northern states. Governors can sit down and come up with initiative on how to collect VAT on that. That will promote competitiveness. If you know that there are no more subventions to depend on, you have to wake up.” 

However, the Chairman, Presidential Advisory Committee on Anti-Corruption, Prof Itse Sagay, while commending Wike for his boldness in a telephone interview with Sunday Sun, said that legal option for restructuring might not be able go far due to constitutional constraints. 

He said: “This Wike’s initiative, which is to be commended, is just a small tiny dent on a car which has suffered major wreckage. If that tiny dent is even fixed, the major wreckage will still be massive unless you do a major repair. 

“From all indications, this struggle in court as to whether FIRS or the states should levy VAT is an opening gambit for the whole struggle for restructuring and fiscal federalism. But I think it is not going to go far without constitutional amendment. 

“There are many areas which are clearly in the corridor of Federal Government rather than the states. Police, for example, is clearly under the control of the Federal Government. You can’t go to court to challenge it that states should have police. That has to be done in a constitutional manner.

“The issue of local government is also a constitutional matter.  It is absolutely an abomination for local government to be stated in a constitution. States’ hands are tied on how many local governments they want to have. I don’t think it can be found anywhere in the whole world. That has to go. In fact, local governments have to be wiped off from the constitution because it is a state affair. But that has to be done constitutionally.

“If I may give you a third example, there is also the question of financial autonomy. There is no need for federation account. It doesn’t exist in a federation. Each state should have its own separate accounts and then pay a certain amount to the Federal Government.

“What I am trying to buttress is that we cannot really get far with our present legal option. It has to be a constitutional amendment option.”

The question now is: What makes it impossible for the National Assembly to include some of these contentious issues in its ongoing constitution amendment to achieve true federalism?

Much more intriguing is the desperation by FIRS to latch on the seeming subservience of the lawmakers to the executive to include VAT collection in the Exclusive Legislative List. This is in addition to its request for the establishment of the Federal Revenue Court as contained in a letter dated July 1, 2021 addressed to the Chairman of the Constitution Review Committee.

Former Deputy Senate President, Senator Ike Ekweremadu, was, however, quick to warn that any constitution amendment to transfer VAT collection to the Exclusive Legislative List, as requested by the FIRS “would amount to changing the goal post in the middle of a game.”

All of these antics have been linked to the opposition of the North to fiscal federalism.

Sagay added: “I can tell you; the people of the North and Middle Belt are against the South on this issue of fiscal federalism because they feel they are the greatest beneficiaries of most resources coming from the South.

“And it creates laziness because if you are sure that a certain amount of money will come every month from the money collected from states by the Federal Government, then there will be absolutely no incentive to look at various ways you can raise funds for yourself. You will just relax because you are getting money without working for it. That is what is being called ‘feeding bottle federalism’.

“On this fiscal federalism, we have to go back to where we were when we as different peoples met together and negotiated to establish a federation from 1950 to 1966.  The military has pervaded it and totally turned it upside down and it is now creating terrible tension that the country is going through.”         

A former Minister of Works, Senator Adeseye Ogunlewe, while also sharing the same sentiment, noted that the National Assembly lacked the will power to do an amendment that would free the country from the arrested development it had suffered over the years.

Speaking with Sunday Sun in a telephone interview, he said: “The National Assembly cannot amend the constitution to achieve restructuring. Those who are benefitting from the present structure will not allow it. For example, look at the issue of electricity generation, some people who are enjoying free electricity from the national grid will not want to remove it from the Exclusive List. Because they don’t want to pay for electricity they consume, they want the status quo to remain. That is the problem.”

On his own part, an erudite Professor of Economics at the Babcock University, Ilisan, Ogun State, Segun Ajibola, suggested a review of revenue sharing formula as a way of resolving the looming imbroglio.

His words: “There are about three angles to it (VAT controversy). One is the issue of who collects. Two, if it is centrally collected, what should be the sharing formula? Three, which one is more beneficial? As for the first issue, the question of equity comes in. How do we share so that we will not have on our hands the kind of situation we have in the Niger Delta where they are complaining that they are giving so much to the centre and getting little in the face of environmental degradation?

“And in this case, we cannot be talking of VAT alone. The revenue sharing formula as it is today has to be revisited for reasons of equity; equity in terms of compensating the source of revenue, in terms of developing the source of such revenue in a way that extracting resources from them will not leave them worse off.”

He, therefore, maintained the need for the Federal Government to retain the powers to collect VAT and ensure equitable sharing of the revenue generated from it.

“But if we talk about which one is best, I believe the Federal Government is in a better state to look at how to share and ensure that there is even development. There are other types of taxes where derivation may have to be applied to ensure that you get as much as you contribute. “It is better to keep the responsibility of collection at the centre subject to equity. And that equity will come when sharing formula is revisited. The same thing applies to oil revenue and mineral resources.

“I believe Supreme Court will make some far reaching decisions in some of these issues to ensure the best for the country.”

Meanwhile, Rivers case has sent jitters through the spines of some states with low revenue generating capacity. Gombe State Commissioner for Finance, Magaji, for instance, at the recent opening of the Technical Workshop on Development of the Medium-Term Sector Strategy (MTSS) for the state, revealed that only three states out of the 36 states of the federation could survive without the proceeds of VAT coming from the Federal Government, pleading with Southern governments to be their “brothers’ keepers” in sharing the VAT revenue.

Magaji said: “The VAT issue will have adverse effects not only on Gombe State but also almost all the states of the federation. I was part of the discussion a few weeks ago by all commissioners of finance across the country.

“The realisation was that only Lagos, Rivers and probably Delta states would be able to pull through without this VAT being administered centrally, and it is our appeal that we all put sentiments behind and work towards a federation that is one, by being our brothers’ keepers and ensuring that what is pool together at the centre is distributed to be able to balance resources across the country.”

But Ekweremadu insisted that fiscal federalism was “the only way to remake our federalism to enable states to harness and unleash their endowments and comparative advantages.

“Rather than begrudge states like Rivers and Lagos, all federating units should be encouraged and enabled to look inwards to reinvent themselves. They should be encouraged to boost their respective competitiveness through improved security, human capital development, industry, and building of egalitarian and cosmopolitan societies”.

In the meantime, the 17 Southern governors, rising from their meeting in Enugu, have collectively resolved to pursue the position that only state governments have the power to collect VAT.

The post Experts dissect VAT controversy appeared first on The Sun Nigeria.

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