•Law backs us, states can’t collect VAT, FIRS insists
•Gombe begs southern states to be ‘brother’s keeper’ in push for VAT collection
•Wike threatens to take over FIRS offices in Rivers
•Says Rivers money not for Abuja people
•Lagos generates over N500bn VAT annually—Speaker
•Vows to enforce Rivers judgment in Lagos
•Face-off unhealthy for business, underscores need for fiscal federalism —OPS
•Other stakeholders react
By Emma Ujah, Abuja Bureau Chief, Olasunkanmi Akoni, Peter Egwuatu, Yinka Kolawole, Ebun Sessou, Nelson Alu & Elizabeth Ushie
AS controversies over collection of Value Added Tax, VAT, swirl at federal and state levels of government, the Federal Inland Revenue Service, FIRS, said it has the backing of the Value Added Tax, VAT Act to collect the tax across the country.
This came as Governor Nyesom Wike of Rivers State, yesterday, threatened to “take over” all offices of the Federal Inland Revenue Service, FISR, in Port Harcourt, if the government agency continued with its “bullying,” saying that he cannot continue to beg the Federal Government for what belongs to his state.
Wike said that there was no going back on the state collecting VAT, in the state, adding that he does not care if heaven falls, as Rivers money was not meant for “Abuja people” but for the development of his state.
Meanwhile, -Speaker, Lagos State House of Assembly, Mr Mudashiru Obasa, yesterday, disclosed that Lagos State generates over N500 billion in VAT annually just as the Attorney-General and Commissioner for Justice, Mr Moyosore Onigbanjo, SAN, said that the state will execute judgment granting states the power to collect VAT, saying no booby trap will affect its implementation.
In another development, Gombe State has made an appeal to Southern state governments to reconsider their push to keep VAT revenues generated in their states.
However, members of the Organised Private Sector, OPS, in exclusive interactions with Vanguard have weighed in on the contention over right to collection of VAT, noting the development was unhealthy for business and underscores the imperative for fiscal federalism
Recall that a Federal High Court sitting in Port Harcourt, had last month in a suit brought by the Rivers State Government held that the state government had the powers to collect VAT within its territory.
The FIRS, on Monday, prayed the court to stay execution on the judgment, but same was refused by the court.
FIRS Group Lead, Special Tax Operations Group, Mr Matthew Gbonjubola and his Digital and Innovation counterpart, Mrs Chiaka Ben-Obi, spoke on the position of the organisation, in Abuja, yesterday. Gbonjubola said: “VAT came into being by virtue of the VAT Decree of 1993 which is a federal law. It came into effect on January 1, 1994. According to the law establishing the VAT, the FIRS is the legitimate authority to administer it.
“The VAT law abrogated all sales taxes at the time it was enacted and upon the advent of the current democratic dispensation, the VAT decree became an Act of the National Assembly and it has remained so until now.”
Why states can’t collect VAT
He explained that the input/output mechanism of VAT and the fact that the bulk of VAT revenue comes from imports, as well as, federal Ministries Departments and Agencies, MDAs, contractors makes it impossible for states to administer the tax.
He said: “There are three very important avenues of VAT collection. One is VAT on imported items — which is collected at the ports of entry. As at today, there is no state government that controls any port in Nigeria, which is why it is a lot easier for the FIRS to administer VAT.
“The second source of VAT is the one we pay when we go to shops and buy things. The third, which contributes a substantial volume of VAT is the one paid by MDAs when contracts are awarded — either contracts for construction, supplies, or services. That is why if you look at VAT today, after Lagos, because we have many ports in Lagos, FCT comes second because the majority of contract awards are from the federal ministries and VAT collected in respect of those ministries are from the Federal Government.
“As to the incidence of VAT, VAT is practised on an input/output mechanism. What it means is that for a business either importing or buying products for resale, that business will pay VAT either at the port, if it is importing or to the manufacturer, if it is buying from a local manufacturer.
“And when that business pays VAT, it is considered as an input tax, such that if they begin to sell in any part of Nigeria and charges VAT, to its customers, it is able to recoup the VAT paid either at the ports or to the manufacturers.
“It works only at the national level. VAT cannot work at the sub-national level. There is no country in the world where VAT works at the sub-national level because VAT works on the input/output mechanism.
“Just to illustrate it, assuming a business person bought an item, let’s say in Osun State and takes the goods to, let’s say Sokoto
State to sell, remember that this business person has paid VAT while purchasing the goods in Osun State, and when selling in Sokoto State, he will charge VAT.
“By the operation of the input/output mechanism, this business person will deduct the input tax paid in Osun State from the output tax charged in Sokoto
State and remit any difference to the relevant tax authorities. In this case, the relevant tax authorities handling VAT is the FIRS.
It is the same tax authority that received the VAT in Osun State that receives the output tax in Sokoto State.
“So, it is easy to work out the input/output mechanism and there is no issue of the business person being shortchanged. There is no issue of the consumer paying VAT more than once.
“However, if this is operated at the state level, it will mean that when the business person is paying that VAT at the state of source, and we have said for instance, Osun State, Osun State will have collected that money.
“And when that business person is selling that same item in Sokoto, they will charge VAT. The dilemma is, how will the business person recoup the VAT paid at the point where the products were purchased?
“Either of two things will happen. Either Osun State will have to refund the VAT collected or Sokoto will have to absorb that loss.
That, in itself will create confusion. “It is extremely difficult, if not impossible to operate VAT at sub-national level. And that is why there is no country in the world that does that.”
I’ll take over FIRS offices in Rivers if…—Wike
Governor Wike at a stakeholders’ meeting in Port Harcourt, while addressing business owners in the state, told the oil firms, construction companies and other business operating in the state to start remitting their VAT to the state government beginning this September.
He lamented the injustice in the country, saying Rivers State generated N15billion in June 2021 but got N4.7billion while “Kano produced N2.8billion in June but Kano also got N2.8billionn. Sometimes you don’t want to believe these things exist.”
Wike added: “I overhead the FIRS chairman saying that he will show me the powers of the Federal Government that FG will muzzle the judiciary. It is not my business. The court has decided.
“All these bullying (by) FIRS, they should mind the state they are bullying. FIRS should be very careful. You don’t bully state like Rivers State. I have the political will to do a lot of things. I am not one of those governors that will shy away. If they continue to bully us, all their offices in the state, I will take.
“I will seal off your premises if you continue paying VAT to FIRS. From this September, we will start collecting our VAT.
“We will not look back but seal up the premises of such companies,” Wike warned, adding that the state does not need the Nigeria Police Force to enforce the collection of VAT but would use the statecreated security outfit backed by the law.
Further, he said: “The Federal Government surreptitiously lobbied to amend the constitution to place VAT collection under the exclusive legislative list. We have challenged it and we have no apologies to anybody.
“I don’t want to be in the good book of anybody but in the good book of God. I don’t want you to fall prey of the people who think they can use force to take our money. If you want to take advantage and say you don’t know who to pay to, it is a lie, you know.”
Lagos generates over N500bn VAT annually —Speaker
Obasa and Onigbanjo, made the disclosure, yesterday, at the state House of Assembly, Alausa, Ikeja, on ‘A Bill for the law to impose and charge VAT n certain goods and services provided for the administration of the tax and other Related Matters.’
The Speaker, represented by his deputy, Wasiu Eshilokun, said: “Hitherto, the responsibility of collecting VAT is assumed by the FG, through FIRS. This, I reckon is against the messages and spirits of the true federalism that our fathers fought for and that we are currently agitating.
“Lagos State feels financially strangulated and unfairly treated by FG in her administration and appropriation of receipts of VAT.
“Lagos State, for instance, generates the excess of 500 billion in VAT form. If we go
by generation trend, in tandem with the N2.4 trillion forecasted by the FIRS, Lagos State will be contributing about 55 per cent of the total VAT collectables in the entire country.
“But what do we get in return, some paltry sum. This injustice and inequity are part of the premises that some of the extant agitations are founded.
READ ALSO: UPDATED: VAT Act supports us – FIRS
“Thankfully, the judiciary, through the Federal High Court of Port Harcourt Division, came to the rescue of the nation and assuaged the fears of teeming Nigerians in her judgment.” Onigbanjo, who responded to a representative of civil society organisations, Mr Adeola Samuel who cautioned the state government over the execution of the judgment in favour of Rivers State, said the state government would soon sign the VAT law in the state. Onigbanjo said: “The judgment on VAT law is not valid only in Rivers State. Any state in Nigeria stands to benefit.
Your statement is not correct on the position of the law. “The National Assembly does not have power on VAT that is what has brought us to where we are today. The position as it is today is that VAT law is no longer applicable in
Nigeria. I respectfully disagree with your position.” Meanwhile, addressing newsmen shortly after the hearing, Chairman of the House Committee on Finance, Rotimi Olowo said: “It will make no sense if all money accruable to us in Lagos State is taken by the Federal Government. Lagos is working hard and we are sweating.”
Gombe begs southern states to be ‘brother’s keeper’ in push for VAT collection
State Commissioner for Finance and Economic Creation, Muhammad Magaji, made the appeal at the start of a Technical Workshop on the development of the state’s Medium-Term Sector Strategy, MTSS. He stated that the other states, particularly those in the country’s South, should set emotions aside and become their brothers’ keepers in sharing the VAT produced in their respective jurisdictions. Magaji contended that, with declining money from the Federation Account, just three of the country’s 36 states could exist without assistance from the federal government.
“The VAT issue will have adverse effects not only on Gombe state but almost all the states of the federation. I was part of the discussion 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 pulled together at the center is distributed to be able to balance resources across the country. “It will be a very bad development that won’t augur well for the country if every state will ask for control of its resources.
“Don’t forget that the oil producing states collect only 13 per cent derivation, so if you say every state will take whatever resources it has, that it means we are starting a very dangerous trajectory that will not augur well for the federation called Nigeria.”
Unhealthy for business —MAN
Director General of Manufacturers Association of Nigeria, MAN, Mr Segun Ajayi Kadir said: “The recent controversy over the control ofVAT between the Federal andstate governments is unhealthy for business. This ismore so at this time that theeconomy is showing signs offull recovery and reasonablegrowth.”Manufacturers, like manyother business operators in Nigeria, are deeply concerned about what becomes of their fate come September 20, 2021, when businesses are expected to file VAT claims and beyond. “The contentions are worrisome and potentially inimical to the smooth operations of our businesses. On the one hand, FIRS is insisting on continuing to collect VAT, on the other, Rivers State government is ordering immediate and complete collection of the same tax.
Lagos State is preparing the ground to go the way of Rivers State. Who knows, other states may be warming up to join the fray. “As the leading payers of VAT in Nigeria, having contributed N44.9 billion in the first half of 2021, according to NBS, the manufacturing sector is going to be hardest hit by this looming impasse. “What we expect, therefore, is for the Federal and State governments to stop the grandstanding and find a mutually acceptable way forward. The business community can ill afford the anxiety and confusion that this controversy is generating. We should not be made to suffer while the two tiers of government fight over who should control VAT.
“Also, we should not be put in a situation where we have to pay both governments the same tax. This will amount to overkill for the struggling manufacturing sector, and I dare say, a recovering economy. This is potentially dangerous, not only to the profitability of the manufacturing sector, it is ruinous to the disposable income of the average Nigerian consumer.”
Brings uncertainty into business space—NACCIMA
Director General of Nigerian Association of Chambers of commerce, Industry,
Mines and Agriculture, NACCIMA, Ayo Olukanni said: “NACCIMA, as a Business Membership Organisation, has continued to advocate for an enabling business environment. This, of course, includes the clarity and transparency of regulations like tax laws.
“The contention on control over VAT collection has introduced uncertainty into the business space. It is our hope that it will be resolved quickly.”
Underscores need for fiscal federalism —Muda Yusuf
An economist and former Director General of Lagos Chamber of Commerce and Industry, LCCI, Dr Muda Yusuf said: “The controversy over the jurisdiction of VAT between the states and FG is for the judiciary to settle. It is a question of law and the interpretation of the law. But there are legal as well as equity issues in the VAT question. But an expeditious hearing of the matter by the judiciary should reduce the risk of disruption and friction between the states and FG.
However, in many jurisdictions around the world, VAT is essentially domiciled with the sub nationals. In some instances, it is imposed as consumption tax.
“The current allocation mechanism of VAT proceeds raises fundamental questions of equity and fairness. The derivation factor in the distribution of VAT revenue should be much higher than what obtains presently. The reason is that there is a strong correlation between the volume and scale of economic activities, VAT revenue generated and negative externalities to the host states. Such economic activities generate proportionate negative externalities which the host states have to take responsibility for.
“Such externalities include impact on the environment, pressure on economic infrastructures such as roads, pressure on social infrastructure such as schools and hospitals, social problems such as heightened criminality, waste management, urbanization challenges such as proliferation of slums, traffic congestion etc. These externalities put enormous pressures on the finances of the sub nationals that provide the bulk of the VAT revenue. A stronger derivative principle of up to 70 percent should be incorporated into the sharing formula for equity and fairness.
“What are unfolding in this conversation are the challenges of a unitary system which we wrongly characterize as federal system. This situation underscores the imperative of fiscal federalism.”
Court ruling has further worsened FG’s revenue position —Chiazor
Analysts and Head of Research and Investment at Fidelity Bank Plc, Victor Chiazor, said: “The court ruling empowering the states to collect VAT against FG will come as a welcome development to the states. States with more business activities will benefit more, while other states with low economic activities will have to put in place policies that will encourage businesses within their respective states or encourage new business to migrate to their states in a bid to increase VAT collection.
“However, if this position is maintained by the Supreme Court, if and when the appeal by the Federal Government get there, FG will have to find other ways to replace the revenue loss to the states as this court ruling has further worsened FG’s revenue position.”
States collecting VAT might result to multiple taxes —Kurfi
Analysts and Managing Director, APT Securities and Funds Limited, Mallam Garba Kurfi said: “It is a source of revenue that till date, 85 per cent goes to state and local government. VAT is very effective in complementing state revenue but how certain is it for the state to be able to effectively collect it and equally distribute same to local government? Will that not be multiple taxes if collected by state as we witness in the telephone and other business?
“If VAT is collected by FIRS and when a product produced in Lagos and sold in Abuja, consumers will pay only once but with state collecting VAT, in Lagos it will collect VAT by the time the good is sold but Lagos is not final consumer.
“In Abuja where the goods would finally be sold to consumers, FCT will collect VAT, how do you recollect the VAT already collected by Lagos State which the company had paid. But if the VAT is collected by FIRS, it is very simple to net up the VAT because the same agent collect it. The same applies to the Northern part of the country that provides raw materials to industries in Lagos.”
Multiple tax prevailing is a concern and not who collect VAT —Omordion
Reacting as well, analyst and Chief Operating Officer, InvestData and Consulting Limited, Ambrose Omordion, said: “I don’t have problem with who is collecting the VAT but how these taxes are becoming disincentive to businesses as a result of multiple taxation prevailing in the nation today. The three tiers of government are collecting almost same and different taxes from one business and operating environment is harsh. What matters here, is whether the government is using the tax to better the business environment. If this will boost state revenue and it’s used to develop infrastructures to drive businesses in the states, no problem.”
States leaning on free money to look inward, build strong economy —Oni
Chartered Stockbroker and Chief Executive, Sofunix Investment and Communications, Sola Oni said: “VAT collection by FG is at variance with true federalism. For instance, VAT on consumption should be collected at the very place where the action takes place. Revenue from VAT is so huge that it has a great impact on the Internally Generated Revenue, IGR, of a country. Last year, Nigeria realised N763 billion from VAT of which 55 per cent is said to be generated in Lagos State. If Lagos State appropriates the money, it will go a long way to further transform the state.
“This model will force other states who are leaning on free money to look inward and build a strong economy where VAT will be a major source of IGR.”