The governments of Lagos and Rivers states have expressed their readiness to begin the collection of Value Added Tax in accordance with the judgement of a Federal High Court in Port Harcourt, which ruled that states, and not the Federal Inland Revenue Service, should be collecting VAT and Personal Income Tax.
Already, the Rivers State Governor, Nyesom Wike, had signed into law the bill that empowers the state to collect VAT, while the Lagos State Government said it had already notified all the stakeholders involved in the payment and receipt of VAT of its resolve to enforce the judgement to the letter.
This is in spite of the opposition by the FIRS, which already filed an appeal against the judgment, and some northern states, who said they preferred the Federal Government to continue collecting the tax.
Justice Stephen Pam, who delivered the judgment on August 10, 2021, also restrained the FIRS and the Attorney General of the Federation from demanding the taxes from the residents of the Rivers State, which by implication affects other states.
VAT is charged on the supply of goods and services in Nigeria, including those imported into the country, except the goods and services specifically exempted under the VAT Act.
By virtue of the Finance Act 2020, which took effect on February 1, 2020, the Value Added Tax charged on affected goods and services rose from five per cent to 7.5 per cent. Yearly, VAT contributes significantly to the total revenue generated by the government.
Prior to the court judgment, however, the FIRS, an agency of the Federal Government, had the responsibility of collecting VAT on behalf of the 36 states of the federation and the Federal Capital Territory. The sum collected is then shared among the three tiers of government, with the Federal Government taking 15 per cent, the states 50 per cent; local governments 35 per cent.
While signing the Valued Added Tax Law No. 4 of 2021 and some other bills into law, Wike said, “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.”
Justifying the reason for filing the suit, Wike added, “In this Rivers State, we awarded contracts to companies and within the last month, we paid over N30bn to the contractors and 7.5 per cent will now be deducted from that and to be given to FIRS.
“Now, look at 7.5 per cent of N30bn of contracts we awarded to companies in Rivers State, you will be talking about almost N3bn only from that source. Now, at the end of the month, Rivers State government has never received more than N2bn from VAT. So, I have contributed more through the award of the contract and you are giving me less. What’s the justification for it?”
In Lagos State, the Commissioner for Information and Strategy, Mr Gbenga Omotosho, said the state government would soon commence the implementation of the court judgment even if it had to send a bill to the House of Assembly to amend the relevant laws.
He said the judgment was a reflection of true federalism and the state government had already notified all the stakeholders involved in the payment and receipt of VAT of its resolve to enforce it.
Omotosho stated, “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.
“We are writing to all the stakeholders to let them know that this is a judgment we are going to obey to the letter.”
Asked when it would take effect in the state, he said, “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.”
Meanwhile, there has been an uneasy calm over the judgement, because according to tax experts, no fewer than 30 states would likely face huge drop in their revenue from the federal allocation, which is the main source of revenue for the states.
Former Minister of Finance, Mrs Kemi Adeosun, had said in August 2017 that 55 per cent of the revenue generated by the Federal Government from VAT was being collected from Lagos State alone, adding that the remaining 45 per cent was being generated from the remaining 35 states and the Federal Capital Territory.
Fiscal Policy Partner and the Africa Tax Leader at PricewaterhouseCoopers, Mr Taiwo Oyedele, had earlier told The PUNCH that the biggest losers would be the 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.
Consequently, apart from the FIRS, some states in the north have also expressed their opposition to the judgement, given the impact it would have on their revenue and how it could worsen their already shaky economy. Some of the states had in the past relied on bailout from the Federal Government to pay salaries.
VAT has been a major contributor to the consolidated revenue fund. In 2020, for example, total VAT collection was about N1.53tn, with import VAT being N348bn while foreign non-import Vat was N420bn and local VAT amounted to N763bn.
In the first quarter of 2021 alone, the National Bureau of Statistics disclosed that the country generated N496.39bn from VAT, which was an improvement on the N324.58bn it earned in the same period in 2020.
Apart from the FIRS, some governors in the northern part of the country have also kicked against the judgment.
The Plateau State Commissioner for Information, Dan Manjang, told one of our correspondents on Friday that the Federal Government should continue to collect the VAT, arguing that states tend to benefit more if the FIRS is allowed to handle the collection.
Manjang said, “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.”
