March 7, 2022

Leaving VAT on concurrent list worrisome — OPS

VAT on concurrent list


…Says FG, states, businesses, consumers’ll bear the VAT brunt

...Businesses’ll have to pay VAT in each state

…More state laws on VAT coming’

By Victor Young & Henry Ojelu, LAGOS

The Organised Private Sector, OPS, has said the federal and state governments, businesses and consumers will bear the brunt of the new Value Added Tax, VAT, regime, following last week’s rejection by the National Assembly, NASS, to place VAT on Exclusive Legislative List, in the ongoing amendment of the 1999 Constitution.

The Organised Private Sector of Nigeria, OPSN comprises the Manufacturers Association of Nigeria, MAN, Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA, Nigeria Employers’ Consultative Association, NECA, Nigeria Association of Small Scale Industries, NASSI, and Nigeria Association of Small and Medium Enterprises, NASME.

At present, NECA, which is the voice of business in Nigeria, and the umbrella body of employers in the country is the secretariat of OPSN.

While waiting for the pronouncement of the nation’s Supreme Court on the matter in the case between the Federal Government and some state governments, the OPS said last week’s decision on VAT by both chambers of NASS is of immense implication to all stakeholders, especially the business community.

‘Businesses’ll have to pay VAT in each state’

In a response to Vanguard’s enquiries over last week’s rejection by the Senate and the House of Representatives on the bid to place VAT on the Exclusive Legislative List, OPS said among others: “Basically, businesses should expect a new taxing regime of having to pay VAT in each state that they have a presence or are located and a further rise in the cost of goods and services, leading to skyrocketing inflation rate and further reducing the currently eroded purchasing power.

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“The bill to ‘alter Part I of the Second Schedule to the Constitution of the Federal Republic of Nigeria, 1999 to include Value Added Tax on the Exclusive Legislative List; and for Related Matters failed to pass after both chambers of the National Assembly voted against it.

“The National Assembly rejected the proposal seeking to move the collection of VAT from the concurrent to the exclusive legislative list, effectively leaving the decision to the Supreme Court, which is hearing the matter that has been filed by some states against the Federal Government, seeking the declaration of the court on which tax authority has power under the constitution to collect VAT.

“A Federal High Court had last year, ruled that states had the powers to collect VAT. However, the Federal Government opposed the ruling and continues to collect VAT, based on the decision of the Federal High Court, sitting in Port Harcourt, and some states government that have enacted VAT laws i.e. Rivers and Lagos states.

“Collection of VAT at the sub-national comes with its challenge, especially businesses that have multiple operational bases and offices across the country in calculating their input and output VAT, leading to accrual of loss by businesses.

“Nevertheless, the burden could be further passed down to final consumers, and the cyclical effect on the macro-economy will further lead to rising in the cost of goods and services. This will also lead to skyrocketing inflation rate and a further reduction in the currently eroded purchasing power.

“While this move is likely to increase productivity and other economic activities to ensure value addition and investment, it has great implications for other stakeholders involved in VAT collection. 

“Businesses should expect a new taxing regime of having to pay VAT in each state that they have a presence or are located. Multiple registrations as businesses will now have to register with different states for different purposes, the issue of different penalties, double taxation, additional compliance cost, different tax rates, and input claims.

“There is the challenge of managing VAT across the states so that it does not have a costly experience for the taxpayers, and then there is the technology gap. The calculation on VAT payable would be different as the VAT rates vary in states.

“For example, six per cent in Lagos State and 7.5 per cent in Rivers State will affect organisations’ claims for their input on VAT. The likely new VAT system would affect the prices of goods and services in different states.

‘More state laws on VAT coming’

“Businesses should expect more state laws on VAT as each House of Assembly would pass laws on VAT to boost their Internally Generated Revenue, IGR. Companies would be expected to understand VAT laws in each state that they have a presence to avoid penalties for non, late or improper compliance.

“Other likely challenges are the operationality of each state VAT system and collections, especially payment by an importer of taxable goods to pay the tax on the goods before clearing the goods.

“It is not clear how this will be implemented to avoid delays in the process, damage to imported goods and payment of demurrage, etc. Would each state have its own Custom Regime/Officers for export of goods and services and VAT payment? 

“Would export be considered as where goods/services are supplied to customers outside a particular state e.g. Lagos and Ogun states, or outside Nigeria?’’

On possible options for businesses, the OPSN stated: “Generally, it’s too early to reach conclusions or sound out expectations, as whatever we say now would still be subject to the decision of the Supreme Court on the matter, as what we say now may be cut short when the Supreme Court decides on the matter.

“Businesses should carry on their activities with a reflection of the current position on the VAT matter. We hope it is resolved with the best interests of the populace at heart as well as the economic development of the nation.

“However, if the Supreme Court rules in favour of the states, businesses would be expected to comply with all validly made VAT laws in the country. Thus, there would be a need for businesses to re-strategise and in some instances, seek clarification from experts or relevant States Internal Revenue Service before taking action.”

It will be recalled that MAN and the Centre for the Promotion of Private Enterprise, CPPE, an economic and business advocacy think-tank, had last Tuesday, faulted the decision of the National Assembly to reject a bill seeking to include Value-Added Tax, VAT, in the exclusive list, noting that their stance might lead to multiple taxations.

Reacting to the development, in a chat with Vanguard, President of MAN, Engr. Mansur Ahmed,  said: “This may lead to multiple taxations, which our association has always objected to. We can only hope the 36 states and FCT, and the Federal Government will find a workable framework that is equitable, transparent and fair to all taxpayers.”

Also commenting on the issue, the Chief Executive Officer of CPPE, Dr Muda Yusuf, said:  “From the perspective of collection efficiency, it is not a bad idea to opt for centralised VAT collection. This should be done by the Federal Inland Revenue Service, FIRS. It has a robust structure, spread and capacity to discharge such responsibility. 

“Besides, mandating the states to collect VAT presents many implementation challenges, especially with regards to inter-state transactions, and value chains that cover several states. There is also the risk of multiple taxations by states.

“The bigger issue to address is that of equitable distribution of whatever is collected. There should be a strong derivation factor in distribution to ensure fairness and equity.”

Recall that on August 9, Justice Stephen Pam of the Federal High Court in Port Harcourt had granted Rivers State government the right to collect VAT, instead of the FIRS, paving the way for state governments to initiate the process to start VAT collection.

Governor Nyesom Wike and his Lagos State counterpart, Babajide Sanwo-Olu, subsequently assented to the VAT Law, 2021 after they were passed by their state houses of assembly.

But the FIRS, which was displeased with the development, later approached the Court of Appeal with a motion seeking a stay of the execution of the judgment granted by the court in Rivers, pending the determination of the case after a similar request was denied by Justice Pam of the Federal High Court, Port Harcourt.

Vanguard News Nigeria