By Dele Sobowale
If the position of Rivers State Government is sustained and replicated by other states, it will increase the cost and time required for compliance by businesses; in addition to the complexity of administering (Value Added Tax) VAT at the sub-national level such as treatment of international and inter-state transactions.” – Institute of Chartered Accountants of Nigeria, ICAN.
Governor Wike remains, in my opinion, the most steadfast Southern State Governor in the struggle against Federal Government’s impunity and the attempt to ram the acceptance of herdsmen colonisation down the throats of the people. If an alien visitor were to land in Lagos and ask me to “Take me to your leader”, I will take him to Portharcourt. But, I am also a firm believer in the idea that “the Yes-man is the enemy” of most top government officials. And, the higher they are, the more people are reluctant to contradict them.
Still for his own sake and that of Nigeria, I urge the Governor to drop the idea of state collection of VAT. It will turn out to be counter-productive and return us to a nightmare we escaped from before it was introduced.
If at all the initiative was politically-motivated, let me point out that everything in Nigeria cannot be politicised. At any rate, VAT was not introduced by Buhari and the All Progressives Congress, APC. It started years before they came to power. Certainly, the verdict of the Rivers State High Court will be appealed by the Federal Government. Consequently, the over-burdened courts of Nigeria will have another needless controversy to handle. Only the lawyers stand to gain from this conflict.
Let me also add a warning to my submission.
Here it goes: The dog and the bone.
My late grandmother, having only me, at four, to talk to most of the time was fond of reading to me Aesop’s Fables or Grimm’s Fairy tales and then translate them into Yoruba. One of my favourite stories was about the dog which got a fat bone from the meat market. Heading for home with the bone clamped between its jaws, he was crossing a pedestrian bridge over a lake. He paused to look at the water below; and saw another dog with a fat bone clamped in its jaws.
Thinking that this was a chance to have two bones, he barked ferociously at the dog in the water; and the bone it had disappeared into the water.
My grandmother used that story several times to drum into my tender skulls that being too greedy might be self-defeating.
Rivers State is one of about six states which are VAT revenue-surplus contributors. Lagos of course sits on top of the pile. The six revenue-surplus states receive in return less than they contribute. To that extent, they subsidise the revenue-deficit states. So, I can understand why a state governor in that position might consider increasing its Internally-Generated-Revenue, IGR, by keeping more of what is generated within its boundaries. Attractive as that option might be, it must be resisted in the interest of all – Federal, State and Local governments.
Because accountants will bear the brunt of the pains which will be inflicted on businesses, it is only natural that ICAN should be among the first to raise alarm. At 77, I am no longer a Sales/Marketing Manager or Director of any company. But, if the Sales/Marketing Managers of companies in the productive sectors know what is good for them, they better join ICAN in beating back this monster about to be unleashed. Otherwise, they will be called upon frequently to go and rescue their sales men, sales vans and goods from several state tax officials who will seize them.
It was bad enough when we had 19 states, and all safe to visit, it will be an almost impossible task with 36 states and the Federal Capital Territory. Barefaced corruption will return and the states will collect less.
Why states will probably get less
“Be careful what you ask for; you might get it and not like it”. That was the advice given me by late Reverend Wardell in New Hampshire, USA, in 1964, after taking care of me before going to start my studies at the university. He was a patient white clergyman. It took some time before the advice sank in.
VAT collection is one such issue which calls for caution. Even Lagos State, which stands to benefit the most, might find the task totally daunting and unrewarding. One thing is certain; there will be endless litigation between states and organisations regarding tax matters. Meanwhile, payment is delayed.
Also predictable is that most states are comparatively disadvantaged when dealing with the large multi-nations. In fact, with the exception of Lagos, we used to bully them.
The companies maintained the figures on which tax assessment will be based. Most of them being in Lagos, state tax collectors were forced to go to Lagos and spend days before receiving attention. In the end, they were too happy to accept the figures provided.
There were too many tricks associated with Sales Tax administration to disclose, but, which need no delay us here. The essential point is this. The states were not receiving what was due to them; and everybody was unhappy with the situation.
The number of companies which come into each state’s VAT net will be far less than the national total. For instance a company imports and sells a product to just five or six states among its over 40 products. Only those states can levy tax on the product. But, under the existing arrangement, the VAT paid on the product goes into the national VAT pool and every state receives a percentage. Once states start collecting VAT they can only receive revenue from products sold within their states. Nothing more.
RMAFC: THE BIG ELEPHANT IN THE ROOM
The Revenue Mobilisation Allocation and Fiscal Commission, RMAFC, created by Decree 49 of 1989 was a necessary edict needed to support the decree creating VAT. RMAFC is now part of our constitution and total VAT collection nationally is among its roles.
The Commission cannot surrender its responsibilities on the basis of any state’s High Court judgment. It is even surprising that any good Justice of a High Court would deliver a verdict, meant to please the state government, knowing full well that it is an exercise in futility. Rivers State alone cannot be allowed to collect its own VAT without altering the collection system and introducing complications which will bring VAT collection to a halt.
Meanwhile over N120 billion shared monthly by the states will be held up. No governor in Nigeria will support Wike on this matter.
Finally, just in case the Governor still does not get the message, let me illustrate the point with a real example.
A manufacturing company based in Lagos upgrades its fleet of delivery vehicles investing N1 billion. All the vehicles were bought in Lagos. The VAT, N75 million, will be shared by the three tiers of government – Federal, State and Local Government.
Rivers State and all the Local Governments will collect their own share of the VAT arising from that transaction. Otherwise, they get nothing; because they would have added no value to the deal. Even if some of the vehicles are sent to Rivers State for company operations, on mostly Federal roads, Rivers can only attempt to claim VAT for the use of state roads as value addition.
That will amount to a small fraction of what the state receives now. Additionally, the state will have to establish the mechanism for monitoring over 300,000 firms; send out tax demand notices and pursue collection.
My advice to the government is to drop it and concentrate on other tasks.