September 24, 2021


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Fiscal federalism and VAT controversy

Following the suit filed by the Government of Rivers State, the Federal High Court in Port Harcourt, presided by Justice Stephen Pam, on August 9, restrained the Federal Inland Revenue Service (FIRS) from collecting Value Added Tax (VAT) and Personal Income Tax (PIT), saying that the collection of VAT falls within the jurisdiction of state governments. Also, the judge refused to grant the ‘stay of execution’ of its ruling which the tax agency asked for.

According to the judge, doing so would negate the principle of equity. He also noted that since the Rivers State government and the State House of Assembly had duly enacted the State VAT Law No.4, 2021, assented to by the governor, making it a legitimate right of the state to collect VAT, granting the relief sought by the appellant (FIRS), would amount to committing “murder “ as the action of the state legislature remains valid.                                       

Consequently, the Rivers State government has commenced the implementation of the judgement on the collection of VAT. Governor Nyesom Wike has directed the State Internal Revenue Service to commence the exercise. It has inaugurated a Tax Appeal Commission, headed by a retired High Court Judge, to give effect to the implementation of the law.                          

Good enough, more states are weighing plans to demand VAT from businesses operating in their jurisdictions. For instance, the Lagos State House of Assembly on September 9 unanimously passed the State VAT bill. Governor Babajide Sanwo-Olu has signed it into law. However, Justice Haruna Tsammani of the Court of Appeal, Abuja Division, has ordered all parties to maintain the status quo and refrain from giving effect to the judgement of the Federal High Court, Port Harcourt. Lagos State has expressed interest to be joined in the matter.

While the outcome of the hearing of an application seeking for stay of execution of the judgement of the Federal High Court Port Harcourt is being awaited, there is need for all parties to remain calm.  The ongoing legal tussle over VAT is good for our democracy. The injustice of our skewed federation is at the root of the VAT collection controversy. According to figures from FIRS, out of N15.1billion VAT proceeds from Rivers State for the month of June, 2021, the state got a paltry N4.7billion, while Lagos State received N9.3billion, out of a total VAT of N46.4billion. In Kano State, VAT collected for the month of June was N2.8billion, and the state got N2.8bn. This underscored the glaring injustice in our administration of VAT.                                        

We believe that the states should collect and spend their own VAT in the spirit of fiscal federalism. The Port Harcourt Federal High Court ruling may have set the motion for true federalism that Nigerians are clamouring for. We also think that fiscal federalism is the best way to a stable Nigeria. It will make the states to sit up and increase their revenue base. The present inequitable distribution of collective wealth is an aberration in a federation. Besides, it discourages hard work and imaginative thinking. The FIRS should be stopped from continuing with this impunity. According the National Bureau of Statistics (NBS), the sum of N496.39bilion was generated from VAT in the first quarter of 2021, an increase of 52.93 percent year-on-year, compared with N334.58 billion recorded in the corresponding period of 2020. In 2020, N1.53trillion was collected from VAT. It is ironical that Lagos, which accounts for about 55 per cent of total VAT collected, gets less than six per cent of VAT collected from the state; and Rivers State, which accounts for six per cent of total VAT generated in a given year, gets less than 2 per cent.                        

Let those states opposing the plan by Rivers and Lagos states to collect VAT realise that it is the best way forward. It may seem difficult initially, but it will encourage healthy competition and development among the states in the long run.      

The absence of VAT provision in the Constitution has contributed to the present row. We urge the states to counter the alleged attempt by the FIRS to lobby the National Assembly to insert VAT in the Exclusive List in the ongoing amendments to the 1999 Constitution.  Already, there are 68 items on the exclusive legislative list, an anathema in a federal system. Rather, power should devolve to the states instead of concentrating in the centre. For long, the Federal Government has acted with impunity on issues that are clearly spelt out in the Constitution.

Therefore, it is good that the 36 states are challenging the collection of Stamp Duty by the Federal Government. They averred that Section 4(2) of the Stamp Duties Act empowered them to administer and collect stamp duty in their domains. So far, over N176billion had been collected by the federal authority from stamp duty from 2015- 2020. It is laudable that state governments are becoming more aware of their constitutional powers. Let the courts adjudicate the matter without fear or favour.

The post Fiscal federalism and VAT controversy appeared first on The Sun Nigeria.

Source: news