The Court of Appeal sitting in Abuja has finally ordered the duo of Rivers and Lagos State governments to maintain the status quo on the collection of Value Added Tax, VAT pending the determination of an appeal earlier submitted by the Federal Inland Revenue Service, FIRS.
This is coming less than 48hours after the Rivers State Governor, Nyesom Wike had predicted on Wednesday that until an order from the appeal court revokes his decision, VAT payment to the state government remains unchanged by the oil companies, banks and other business owners in Rivers.
Meanwhile, the appellate court hinted that the order was to preserve the subject matter of the appeal before it and specifically ordered all parties involved to refrain from taking any action to give effect to the judgement of the Rivers State High Court which empowered the Rivers State government to collect VAT rather than the FIRS.
Similarly, an application filed by the Lagos State government to join Rivers State in the proceedings was set aside for a hearing on September 16 by a three- man panel of Appeal Court Justices led by Justice Haruna Tsammani.
What Is VAT?
VAT is the abbreviation for Value- Added- Tax which simply means a tax that is added to the price of goods or services.
According to collinsdictionary. com, VAT is a form of indirect sales tax paid on products and services at each stage of production or distribution, based on the value- added at that stage and included in the cost to the ultimate consumer.
In Nigeria, VAT is charged on goods and services including the ones imported into the country except those exclusively exempted under the VAT act. Annually, it significantly contributes to the revenue generated by the government and based on the Finance Act 2020 which became effective from February 1, 2020, it had increased from 5% to 7. 5%.
How Wike Initiated The Evangelism Of VAT?
On August 9, 2021, the journey into the new social change(VAT) began after Justice Stephen Daylop Pam of the Federal High Court, Port- Harcourt ruled that henceforth the Rivers State government, not the Federal Inland Revenue Service (FIRS) had the right to collect Value Added Tax (VAT) and Personal Income Tax (PIT) in Rivers State.
The court ruling didn’ t stop there, it further issued an order of perpetual injunction restraining both the FIRS and the Attorney General of the Federation (AGF) from demanding, collecting, threatening and intimidating residents of Rivers State to pay to FIRS, personnel income tax, and VAT.
Consequently, Governor Wike implemented the court’ s ruling by signing the Valued Added Tax Law No. 4 of 2021 into law alongside some other bills. He said it was a historic moment for the people of the state to challenge the age- long illegality perpetrated by the state through FIRS. He also claimed that when Federal Government agencies illegally demand and collect taxes that are meant for states, it would stifle such states financially and eventually rendered them, beggars.
Justifying the rationale behind filing the suit in the court, Wike intimated, ” 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, the 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? ”
The Ripple Effect Of Wike’ s Actions
Reacting to the judgement by the Federal High Court, the Lagos State Commissioner of Information and Strategy, Mr Gbenga Omotosho hinted that the judgement will be implemented and a bill would be sent to the House of Assembly in that regard. He also said that all stakeholders involved in the payment and receipt of VAT had already been notified about the imminent implementation of the court ruling.
On Thursday, 9 September, the Lagos Assembly passed the Value Added Tax(VAT) bill alongside the Anti- Open grazing bill after scaling through the third reading.
The Speaker of the House, Rt. Hon. Mudashiru Obasa later instructed the acting Clerk to transmit a clean copy of the bill to the Governor, Babajide Sanwo- Olu for assent. Meanwhile, the House had held a public hearing a day before it was passed with many stakeholders expressing utter support.
FIRS Sought Lawmakers’ Co- operation
After Justice Stephen Pam rejected the application of the FIRS to stay of execution, stating it would negate the principle of equity, the Executive Chairman of the FIRS, Muhammad Nami, wrote a letter dated July 1, 2021, to the Chairman of the House Constitution Review Committee, Idris Ahmed Wase.
The letter which was received on the 2nd of July by the Deputy Speaker’ s Office sought for the sponsorship of a bill for the establishment of the proposed Federal Revenue Court of Nigeria and the insertion of Value Added Tax under item 58 of the exclusive legislative list’ .
In the letter, the FIRS proposed a bill to amend Section 251 (1) (b) of the 1999 Constitution as amended by removing the exclusive jurisdiction of the Federal High Court only on anything connected or related to federal tax matters since the proposed Federal Revenue Court would have the same feature.
Also, the FIRS proposed the inclusion of the Value Added Tax immediately after Stamp Duties under item 58, part II of the 2nd schedule of the 1999 Constitution as amended.
Wike Cites Perpetual Injustice By The Federal Government
Similar to his rationale behind instituting a legal suit against the Federal Government in collecting his State’ s VAT, Governor Wike also cited what he described as an injustice that has been happening in the country.
According to him, Rivers State generated the sum of N15bn in June this year was received N4. 7 bn in return while Kano generated N2. 8bn in the same month and received the same amount(N2. 8bn) as a Tax return. Isn’ t that injustice? . He also added that he had no issue with the FIRS collecting VAT in Abuja but the one in his State (Rivers) must stop.
Governor Aminu Bello Masari of Katsina State did not only oppose the judgement given by the court based in Rivers State, but it also revealed that an appeal had already been instituted to avoid its non- implementation.
Looking at it from the consumer’ s angle, the Governor said the implementation of the ruling would mean double taxation by the states which would eventually lead to a huge burden upon the people who are usually at the receiving end of such policies.
He also said that the ruling was capable of creating a crisis in the country intimating that Lagos and Rivers States wouldn’ t have been what they are today if not for the contribution of people of other states. He however advised that the country should promote what would be in the interest of all.
Speaking on behalf of the Plateau State Government, the State Commissioner for Information, Dan Manjang told Punch that the status should be maintained. That is, they support the continued collection of VAT by the Federal Government saying that the amount they would spend in collecting VAT as a State would be more than what the Federal Government will give them in return through the FIRS. He also said that the lack of industries in the State would affect the efficacy of the State.
The Gombe State Government through its Commissioner of Finance and Economic Creation, Muhammad Magaji gave a subtle approach by appealing to the Southern governors to be their brother’ s keeper. He said if the FIRS is stopped from collecting VAT, almost all the States will feel its negative impact including Gombe. He noted that only three states namely: Lagos, Rivers and probably Delta states may not feel the impact.
Has VAT Instigated A Call For Restructuring And True Federalism?
As the duo of Governor Wike and Sanwo- Olu intensifies the agitation for the state collection of VAT, some Nigerians believed it is a way of promoting a call for restructuring and true federalism which the Buhari- led administration and the 9th Assembly have been adamant on.
Femi Falana, a human rights lawyer and Senior Advocate of Nigeria believed the judgement was an impetus for the call for an economic restructuring in the country. He said the ruling was in tandem with the provision of the constitution and advised other states government to join in the Appeal Court suit to defend the Federal High Court Judgement.
” It has confirmed the struggle for restructuring via litigation. That means that the judgment will strengthen the campaign for restructuring. ” he said
” It has a lot of implications for the dwindling revenue of the state and local governments across the federation, ”
” VAT was increased from five per cent to 7. 5 per cent last year by the National Assembly. Right now, VAT collected is between N1. 5 trillion and N1. 8 trillion per annum, ” he added
Similarly, the former Deputy Governor of Central Bank, Kingsley Moghalu tweeted: The Federal High Court ruling on VAT is the correct one, though we can expect litigation to the Supreme Court. It strikes a strong blow at THE LAZY FEDERAL GOVERNMENT whose head once called our youth ” lazy” . Nigeria has long been a fiscally failed state, ”
” Why should states in a supposed federation be producing mainly for @NigeriaGov? #Restructuring has already begun, by fire by force. I pity those who think they can stop the wind. ” he added
Tax Expert’ s View
” 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, ” Taiwo Oyedele Fiscal Policy Partner and the Africa Tax Leader at PricewaterhouseCoopers