By Tony Eluemunor
The Rivers State Government recently taught us a meaningful lesson; that our idea of constitutional and legal provisions grows through court interpretations. It is not every change that depends on a constitutional amendment.
Just when you thought that you had heard all the absurdities, a Federal Inland Revenue Service official came to lower the bar of absurdities down into the gutter. Group Lead, Special Operations Group, of the FIRS, Mr. Mathew Gbonjubola, in Abuja on Wednesday, September 8, said: “There is nowhere in the world where the administration of VAT is done at the sub-national level.”
Could someone please bring Mr. Mathew Gbonjubola up to date on this score: one, that only four other countries in the whole world practice the sort of Nigerian Presidential Federalism so he should forget the other countries and check, say, what goes on in the United States of America, Argentina or Brazil. So, I looked up the US and found this: it is a fact that the State of Michigan has its own Value Added Tax regime. So? So, Mr. Gbonjubola was wrong. If he bothered to check the website of the US Institute of Taxation he would have known that “Although Michigan is the only state that currently relies on a VAT as a major revenue source, several other states have recently considered implementing this type of tax.”
Yet, it would be easy for any Nigerian to decipher why the change Michigan is introducing did not take root in the US long ago; the US Federal Government has not been seizing the mineral and other earnings of all the states, only to dole out to them monthly handouts. But such happens in Nigeria, making a mockery of our federal system of government. In other federal countries, states remain poor or rich according to the revenues they earn. But here, states who readily embrace depend on allocations.
Here is another absurdity:“On August 23, FIRS went public warning taxpayers that refusal to pay VAT to the Federal Government’s agency will lead to penalties. The FIRS urged taxpayers, especially those in Rivers State to continue to pay their VAT to it to avoid paying penalties for failure to do so.” The issuance of that statement was a most lawless act in itself. It is so because no higher court has reversed the initial court judgment of August 9, 2021, given by a federal high court sitting in Port Harcourt, that the FIRS which had been assessing, collecting, and accounting for tax and other revenues accruing to the Federal Government of Nigeria—should stop collecting value-added tax (VAT) and personal income tax (PIT) in Rivers state. It directed the Rivers State Government to take charge of the collection.
That was an unambiguous pronouncement that required immediate obedience until it was set aside. In fact, Justice Stephen Pam, said in the ruling that there was no constitutional basis for the FIRS to demand for and collect VAT and other such taxes in Rivers State or any other state of the federation, being that the constitutional powers and competence of the Federal Government was limited to taxation of incomes, profits and capital gains, which does not include VAT and others of such taxes. That plainly means that the Federal Government had been stealing from the states.
Adding insult to injury, Mathew Gbonjubola said: “The revenue from VAT,“ is administered under an arrangement that allows the Federal Government to collect 15 per cent, states 50 per cent and local government 35 per cent. The implication of this is that the state and local government takes about 85 per cent of VAT proceeds. The VAT is not paid to the federation account but into a VAT pool account for distribution to the three tiers of government. It is after the sharing that the portion of the Federal Government is paid to the Consolidated Revenue Fund Account.”
Could someone please tell Gbonjubola and those who like him assume that the ancient regime of VAT has been fair to all concerned simply because the Federal Government does not appropriate (or better still misappropriate) all the VAT proceeds for, and to, itself. Had he been listening keenly, he would have heard Rivers Governor Nyesom Ezenwo Nwike saying: “In this (Rivers) state, we awarded contracts to companies, and within the last month we paid over N30 billion to the contractors and 7.5% will now be deducted from that and to be given to FIRS. Now, look at 7.5% of 30 Billion of contracts we awarded to companies in Rivers State, you will be talking about almost N3 billion only from that source. Now, at the end of the month, (the) Rivers State government has never received more than N2 billion from VAT. So, I have contributed more through the award of contract and you are giving me less. What’s the justification for it?”
The situation becomes particularly rankling when you remember that In November 2020, the Vanguard reported that the Hisbah Board destroyed about 2 million bottles of beer worth over N200 million confiscated in Kano. In February 2021, 3000 alcohol bottles were destroyed in Katsina. In the same month, Bauchi state destroyed 260 crates of alcoholic drinks. In May, Jigawa State arrested six persons while confiscating 453 bottles of assorted beer. This happens every month in the Northern states. Kano introduced a new dimension when a few months ago its Hisbah Board outlawed mannequins usage in clothes display.
So, just as Kano is pursuing its special interest and true federalism by banning mannequin display or alcohol consumption, Rivers and Lagos states are pursuing the broadening of their tax bases. It is a question of state interest. And if FIRS officials need to return to school to learn that the multi-layered state-administered VAT could actually be changed to a one-stop sales tax payment, so be it. True Federalism is on the march!