TheNewsGuru

Tag: VAT

  • BREAKING: Appeal Court stays order allowing Rivers Govt to collect VAT

    BREAKING: Appeal Court stays order allowing Rivers Govt to collect VAT

    The Appeal Court sitting in Abuja has ordered all parties to maintain status quo and refrain from taking action that would give effect to the judgement of a Federal High Court in Port Harcourt that allowed the Rivers State government to collect Value Added Tax (VAT).

    A three-man panel of the appellate court led by Justice Haruna Tsammani gave the order on Friday while ruling on an appeal filed by the Federal Internal Revenue Service (FIRS).

    The court also ruled that the motion of joinder by the Lagos State government be heard and gave the applicants two days to file their written addresses.

    Similarly, the respondents have been given two days to file their response, while the applicants were given a day to reply on the point of law.

  • VAT: Gombe State Govt begs Southern Governors

    VAT: Gombe State Govt begs Southern Governors

    The Gombe State Government has pleaded with the government of other States, especially those from the Southern parts of the country to reconsider their stance on the issue of Value Added Tax (VAT).

    TheNewsGuru.com (TNG) reports Gombe State’s Commissioner for Finance and Economic Development, Muhammad Magaji made the plea at the opening of Technical Workshop on development of the Medium-Term Sector Strategy (MTSS) for the State.

    He said the other States, especially those from southern parts of the country, should put sentiment aside and become brothers’ keepers in sharing the VAT generated in their respective states.

    TNG reports the plea is coming as the Governor of Rivers State, Nyesom Wike and his Lagos State counterpart, Babajide Sanwo-Olu have taken steps to start the collection of VAT in their respective States.

    Magaji posited that with the dwindling revenue from the federation account, it was obvious that only three of the 36 states in the country could survive without support 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 pull together at the center is distributed to be able to balance resources across the country,” Magaji said.

    According to him, it would be a very bad development that won’t augur well for the country if every state will ask for control of its resources.

    He added, “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.”

  • Daggers drawn over VAT collection in Rivers as FIRS appeals court judgement

    Daggers drawn over VAT collection in Rivers as FIRS appeals court judgement

    The Federal Inland Revenue Service (FIRS) on Wednesday said it has appealed the judgement of the Federal High Court in Rivers which held that the agency does not have the right to collect Value Added Tax (VAT) in the state.

    In a news conference in Abuja, FIRS Group Lead, Special Tax Operations, Matthew Gbonjugbola, said it is the exclusive right of the agency to collect VAT in the country.

    Gbonjugbola explained that the law mandating the FIRS to collect VAT seeks to protect businesses from multiple VAT.

    “I can confirm to you that FIRS indeed approached an appellate court to review the judgement of the lower court at the Federal Court of Appeal in Rivers,” he said.

    “Be assured that FIRS has filed an appeal and that one is in process and that is why we are not able to speak.”

    Speaking further, Gbonjugbola said VAT collection cannot work at the sub-national level, maintaining that the FIRS is empowered by law to do so.

    The FIRS official also dismissed purported plans by the agency to tax social media in Nigeria.

    TheNewsGuru.com, TNG reports that this is is coming days after a Federal High Court in Port Harcourt delivered a judgment restraining the FIRS from collecting VAT and personal income tax in Rivers State.

    TNG notes that VAT is a consumption tax paid when goods are purchased and services are rendered. It is charged at a rate of 7.5 percent.

  • VAT war: If you continue to bully me, I will take over FIRS offices in Rivers – Wike

    VAT war: If you continue to bully me, I will take over FIRS offices in Rivers – Wike

    …says FIRS can collect VAT in Abuja

    …as Lagos Assembly Bill to collect VAT passes second reading

    Fire spitting Rivers State Governor, Nyesom Wike has threatened to take over Federal Inland Revenue Service (FIRS) offices in his state if the service decides to bully the State.

    TheNewsGuru.com (TNG) reports Wike saying: “I am not challenging FIRS from collecting VAT in Abuja. Let it be understood. But the law says Rivers must collect VAT in the State.

    “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. You don’t bully state like us. I will shut FIRS offices in Rivers if bullying continues’.

    “I don’t want to be in the good book of anybody but in the good book of God.

    “You don’t bully state like us. FIRS should be very careful. I have the political will to do a lot of things. If they continue to bully us, I will take all their offices in the state.

    The governor warned the oil companies and business owners not to remit their VAT to FIRS but the Rivers State Government.

    “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.

    “From this September, we will start collecting our VAT.

    “We will not look back but seal up the premises of such companies,” he warned.

    Meanwhile, a similar bill seeking that the Lagos State Government can collect VAT has passed second reading in the State House of Assembly.

    If finally passed and endorsed by the State Governor, the State will join Rivers State in the new crusade to collect VAT.

  • Court rejects FIRS suit seeking to stop Rivers Government from collecting VAT

    Court rejects FIRS suit seeking to stop Rivers Government from collecting VAT

    Justice Stephen Dalyop Pam of the Federal High Court in Port Harcourt, Rivers State on Monday refused an application by the Federal Inland Revenue Service (FIRS), seeking to stop the Rivers State Government from collecting Value Added Tax (VAT).

    The Federal Inland Revenue Service filed the application in mid-August against the judgment of the same court which had on August 9 ruled that the Rivers State Government, and not the Federal Inland Revenue Service, is entitled to collect Value Added Tax and Personal Income Tax in Rivers State’s territory.

    The judgment was delivered in a suit filed by the Attorney General of Rivers State against the Federal Inland Revenue Service and the Attorney General of the Federation.

    Not satisfied with the judgment, the FIRS approached an Appeal Court to challenge the ruling.

    While the appeal was yet to begin, the revenue collection agency returned to the same Federal High Court in Port Harcourt to seek a stay of execution on the court’s decision, pending the determination of their appeal.

    In delivering his ruling on the application by the FIRS, Justice Stephen Dalyop Pam says FIRS failed to file an application to set aside the Rivers State Tax Law of 2021 which was recently enacted by the Rivers State House of Assembly and assented to by Governor Nyesom Wike on August 19, therefore the state law on Value Added Tax is valid and subsisting.

    The judge also ruled that the Federal Government already has a huge liability arising from the many years it has collected the tax on behalf of Rivers State, therefore it may be a difficult task for the Federal Government to refund the state if his judgment authorizing the state to collect the tax is upheld at the appellate courts.

    The judge believes that Rivers State can easily remit whatever amount it may have received within the litigation period to the Federal Government if it loses at the Appeal Court.

    While the Counsel to the Rivers State Government hailed the ruling, the lawyer to the Federal Inland Revenue Service is hoping to get favourable judgment at the Appeal Court.

  • VAT battle with FG: Wike blows hot, vows to enforce Rivers tax law

    VAT battle with FG: Wike blows hot, vows to enforce Rivers tax law

    Rivers State Governor, Nyesom Wike has vowed to enforce the State’s Value Added Tax Law 2021 to its letters, stressing that all corporate bodies, business entities and individuals that fail to comply will face the full weight of the law.

    Governor Wike especially directed the Rivers State Revenue Service (RSRS) to ensure the full and total implementation and enforcement of the law against all corporate bodies, business entities and individuals with immediate effect.

    TheNewsGuru.com (TNG) reports the Governor’s directive follows a Federal High Court judgement setting aside a stay-of-execution order the Federal Inland Revenue Service (FIRS) filed against a judgement of the Federal High Court, Port Harcourt, which upheld the constitutional right and authority of State Governments to impose, collect and utilize value added taxes (VAT) within their respective territorial jurisdictions.

    Speaking during a statewide broadcast on Monday, Governor Wike said that some States with presently low economic activities and ethically restrictive social policies with economic implications may be adversely affected for now, but that in the long run, States will benefit.

    The Rivers State Governor lambasted his Katsina counterpart, Aminu Masari, who Wike said is vainly conspiring to truncate the efforts by the Rivers State Government to collect VAT.

    Governor Wike’s text of the statewide broadcast reads: “My dear people of Rivers State, as we all know, following the recent judgement of the Federal High Court, Port Harcourt, which upheld the constitutional right and authority of State Governments to impose, collect and utilize value added taxes (VAT) within their respective territorial jurisdictions, the Rivers State Government enacted the Rivers State Value Added Tax Law 2021 to regulate the effective administration of VAT in Rivers State.

    “As expected, the Federal Government, through the Federal Inland Revenue Service (FIRS), disagreed and filed an appeal coupled with a request for stay-of-execution of the judgment before the Federal High Court.

    “While the appeal was pending and without any stay-of-execution of the subsisting judgement, the FIRS went about to bully corporate bodies and business entities from paying the VAT to the Rivers State Government even when they knew that an appeal does not serve as a stay neither was there anything to stay in a declaratory judgement.

    “As a mere agency of the Federal Government without any political authority the effrontery and impunity exhibited by the FIRS against the Rivers State Government was ill-advised and highly provocative.

    “However, being a government that believes in the rule of law we decided on our own to suspend the enforcement of the Rivers State VAT Law 2021 pending the outcome of the FIRS’s application for stay-of-execution.

    “Today, the FIRS has failed in its attempt to frustrate the enforcement of the State’s Law on VAT with the Federal High Court’s dismissal of its application for stay-of-execution of the judgement.

    “It is important to reiterate the fact that we did no wrong in exercising our legal right under our constitutional democracy to stop the continuing breach, denial and curtailment of the constitutional right of States to lawfully impose and collect value added and other related taxes within jurisdiction to the exclusion of the Federal Government.

    “And in doing so our singular and progressive objective was to contribute to the advancement of fiscal federalism by enabling the federating States to explore and exploit their potential and capacity for generating greater internal revenues with which to fund their development goals and reduce the outdated over-reliance on pitiable Federal allocation and other handouts.

    “Naturally, some States with presently low economic activities and ethically restrictive social policies with economic implications may be adversely affected for now.

    “But, this is not our own making. Like the right to derivation, this is also a constitutional prescription, which we all swore as political leaders to respect and defend as the supreme law of the land.

    “Above all, fiscal federalism remains the right path to economic self-reliance and sustainability for all our States and the benefits derivable from this case by all the States in the long run far outweigh the immediate revenue loss that some States may presently suffer.

    “All that is required is for all of us to wear our thinking caps as elected Governors to collectively fight for the greater devolution of resources, responsibilities and powers to the federating States.

    “It is therefore very unfortunate that some State Governors led by that of Katsina State are vainly conspiring to truncate this progressive reality in favour of the inequitable status quo so that the Federal Government can continue to rob Peter to pay Paul as the nation’s self-imposed tax master-general.

    “For us in Rivers State, we will continue to ensure and project our constitutional rights to access all possible resources we can take hold both within and outside our geographical boundaries to advance the progress of our State.

    “And with today’s judgement the way is now clear for the administration and enforcement of the Rivers State Value Added Tax Law 2021 across the entire State until otherwise decided and set aside by the Superior Courts.

    “Consequently, I hereby direct the Rivers State Revenue Service (RSRS) to ensure the full and total implementation and enforcement of this law against all corporate bodies, business entities and individuals with immediate effect.

    “All corporate bodies, business entities and individuals are advised to willingly, truthfully and promptly comply with their tax obligations under this law to avoid the full weight of the stipulated sanctions, including having their business premises sealed-up.

    “Let me warn that the Rivers State Government is fully in charge of the State and will not tolerate any further attempt by the FIRS to sabotage or undermine our authority to freely administer our tax and other related laws in our own State. Those who play with fire risks having their fingers burnt. Enough of the shenanigans.

    “I wish to further assure every resident that we shall as usual make effective use of the expected proceeds from this tax to accelerate the development of our State and improve the wellbeing of everyone”.

  • VAT War Pyrrhic victory for states -Dele Sobowale

    VAT War Pyrrhic victory for states -Dele Sobowale

    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 VAT at the subnational 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 FG. 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 come here and spend days before receiving attention. In the end, they were too happy to accept the figuresprovided. 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.

  • ICAN seeks amicable resolution of VAT collection dispute

    The Institute of Chartered Accountants of Nigeria (ICAN), has implored Rivers and Federal Governments to amicably resolve the issue of VAT collection, to protect taxpayers and provide certainty to businesses.

    Mr Ahmed Kumshe, the Registrar and Chief Executive of ICAN, gave the advice on Tuesday in reaction to the judgement of the Federal High Court in Suit No. FHC/PH/CS/149/2020.

    The matter is between the Attorney General of Rivers, Federal Inland Revenue Service (FIRS) and Attorney General of the Federation.

    The Federal High Court sitting in Port Harcourt had ruled in favour of Rivers in respect of the power to collect Value Added Tax (VAT), essentially giving power to states to collect VAT instead of FIRS.

    Kumshe advised that the matter must not be allowed to degenerate given the country’s precarious tax revenue position and the general business environment.

    He said that sustaining and replicating the position by other states would increase the cost and time required for compliance by businesses.

    This, he said, was in addition to the complexity of administering VAT at the subnational level, such as treatment of international and inter-state transactions.

    The ICAN registrar said that administering VAT at the state level might add to the myriad of taxes across different levels of government, many of which are targeted at the same tax base, thereby encouraging multiplicity of taxes.

    “Given the rapid development of events since the judgment, there is the need to guide our members, share our views with policymakers and educate the public and other stakeholders on the possible implications.

    “While the move by the Rivers State government seeks to promote the principle of fiscal federalism, we are of the view that the matter should be approached carefully to achieve a win-win outcome for all stakeholders.

    “Collection of VAT by states may be more demanding, especially in the short to medium term in the aspect of VAT skills and knowledge, dealing with digital transactions, VAT audit, and dispute resolution.

    “In the absence of exemption threshold for small businesses and limited list of exempted goods and services, there may be adverse effect on the masses in Rivers State especially poor households and SMEs,” he said.

    Kumshe said that the ongoing development presented an opportunity to re-examine Nigeria’s fiscal federalism and leverage on the ongoing Constitutional review to fashion out the most suitable fiscal structure for the country.

    According to him, the process should include a review of the VAT law, its administration and revenue sharing formula.

    This, he said, must be in a manner that strengthens the subnational level of government while ensuring uniformity of treatment as much as possible.

  • Despite court ruling, FIRS threatens to penalise Nigerians who pay VAT elsewhere

    Despite court ruling, FIRS threatens to penalise Nigerians who pay VAT elsewhere

    The Federal Inland Revenue Service (FIRS) has urged taxpayers to continue to pay their Value Added Tax (VAT) to it to avoid paying penalties for failure to do so.

    Mr Abdullahi Ahmad, Director, Communications and Liaison Department of the FIRS, gave the advice in a statement on Sunday in Abuja.

    He said the FIRS issued the directive following numerous enquiries in the aftermath of a recent judgment obtained by the Rivers government at the Federal High Court sitting in Port Harcourt.

    TheNewsGuru.com, TNG reports that the court had on August 9 ruled that the Rivers government, not the FIRS, was the rightful authority to collect VAT.

    Following the judgment, Gov. Nyesom Wike on Thursday, August 19 signed into law a bill which authorises the Rivers government to henceforth collect VAT in the state.

    The FIRS spokesperson explained that since the organisation had already appealed the judgment, in which it sought a stay of execution order and that the status quo ante should subsist on VAT collection.

    He said taxpayers should continue to pay their VAT to the FIRS.

    “The attention of the FIRS has been drawn to the trending report that on 19/08/2021, the Government of Rivers State took steps to enact a Value Added Tax Law for Rivers State following the Judgment of the Federal High Court Port Harcourt Division on August 9, 2021 in Suit No: CS/149/2020.

    “The suit was about who has the constitutional duty for the collection of VAT and Personal income tax in Rivers State.

    “We wish to inform the general public that before the above-mentioned steps taken by the Government of Rivers State, FIRS had lodged an appeal against the above judgment and had also filed an application for stay of execution of the judgment as well asking the court for an injunction pending the determination of the appeal.

    “All parties to the suit are aware that both applications were heard on the 19th and 20th August 2021 and are awaiting the decision of the court.

    “Given that the Court of Appeal is yet to rule on the Appeal from the Judgment of Federal High Court and that the Federal High Court is yet to deliver a ruling on FIRS’s applications for stay of execution and injunction” he explained.

    Ahmad urged the public to continue to comply with their VAT obligations until the matter is resolved by the appellate court.

  • Vat War: Pyrrhic victory for states (1) – Dele Sobowale

    Vat War: Pyrrhic victory for states (1) – Dele Sobowale

    Dele Sobowale

    “In this world, nothing can be said to be certain, except death and taxes.”

    Benjamin Franklin, 1706-1790, VANGUARD BOOK OF QUOTATIONS, p 241

    Irrespective of what it is called — levies, rates, duty, surcharges, fees etc –everybody pays taxes, directly or indirectly, in one form or another. Since taxes involve money taken by law from citizens in any jurisdiction – federal, state, local government, county etc – it is not also surprising that there are unending disputes regarding which tier of government can or should impose certain classes of taxes; who should collect them; how they are to be collected and disposed of.

    The Value Added Tax, VAT, War ignited by the Rivers State when it approached its own High Court to claim the exclusive right to collect the VAT generated within the state should therefore be seen in that narrow context. Rivers is not asking for the right to determine the VAT rate or alter it from the existing 7.5 per cent imposed by the Federal Government. The state government is not even requesting for the abolition of VAT within the state; neither is it proposing another state-based tax system. The state is only demanding for the right to collect the VAT; keep 50 per cent of the proceeds for itself in the spirit of true federalism and send the balance to Abuja for sharing.

    Before going forward, it is pertinent to reveal that I was one of the instigators of VAT in the 1980s. The reasons for its adoption over the previous state-based Sales Tax, ST, will soon be explained – because they are even more pertinent now than when the measure was introduced. Secondly, I am not a lawyer; and this article will not question the judicial verdict. Although, it is obvious that the state government approached a court which stands to benefit from the decision it reached. The state figured, quite correctly, that it would increase its internally-generated revenue if it can collect the VAT. Nobody can blame the government for using all legal means to increase its revenue base and improve the welfare of the people. Governor should be commended for trying his best in this regard.

    The reader might then be wondering what then is the basis for concern?

    “The road to hell is paved with good intentions.”

    What to Rivers appears to be a straight forward case, even if unchallenged at a higher court, will effectively repeal the VAT. The consequences of that will be so devastating to the Nigerian economy as to call for caution before moving forward. Rivers is not the largest contributor to the VAT pool which now drops about N130-140 billion into the Federation Account monthly. Lagos state is responsible for about 48 per cent of VAT revenue. As a Lagos state indigene, I should be among the first to give total support to the Rivers High Court judgment. If you then add the fact that Lagos contributes close to 60 per cent of company taxes, then it is obvious that Rivers will not be the biggest beneficiary of this legal victory. So, why am I not fully supporting it?

    The short answer is: paradox of economics. Sending VAT collection to the states will not increase the aggregate VAT revenue collection. Most likely, it will drastically reduce it. Here are some reasons why.

    “VAT judgement: 30 states may suffer revenue drop, say experts.”

    News Report.

    It is sometimes a blessing; and sometimes frustrating to live long to observe what had happened to an idea one fought for against strong opposition, being fought over again – now that the measure had been vindicated. Nigeria is one of 166 out of 193 member countries of the United Nations which now implement VAT in one form or another. Most of the rest are either island nations, eg Fiji, which don’t need the elaborate mechanism for collecting VAT or nations which have been destabilised by war eg Afganistan.

    Most federated nations, with multiple layers of government have adopted it because it solves a monumental task of tax collection in the best way known to them despite its known defects. The first lesson we better learn is that there is no perfect tax collection and disbursal system when multiples government tiers are entitled to their share of the funds generated.

    NIGERIA BEFORE VAT

    Thousands of Elder Corporate Managers, leaders of the Organised Private Sector, OPS, are still alive today who can testify to what happened in the 1970s to late 1980s when Sales Taxes were collected by states. Few would confess to what we did to evade correct payment of Sales Taxes to states. Calculating the Sales Tax due to four regions was a daunting task without computers. It became an increasing nightmare when four regions became twelve states, which rose in number to nineteen, 21 and 30. No company in the OPS could have been able to cope with the load of Sales tax calculation to so many states – especially when the tax rates were not uniform. They ranged from 3 per cent to 7 per cent. And each time a state was split into two, the two new states sometimes introduced different rates from the former state.

    Burdened by so many different Sales tax rates, it did not take many in the OPS, as well as Small and Medium Scale enterprises, to find two loopholes to crawl through. The Sales Tax laws applied to goods and services consumed within the state. Companies were required to provide the sales figures – which state tax auditors were expected to verify by checking on the major distributors and dealers. With frequently less than a dozen staff to monitor over three hundred thousand products, it did not take long for the states staff to get tired. Thereafter, the more responsible companies paid what they chose to. Invariably, this was a fraction of the actual tax due to the states.

    The more unethical firms took a shorter route to rob states of their tax collection. They took a look at the penalties for failure to pay tax. They were so light, few of us in companies could resist the invitation to evade paying taxes altogether. Thus, a company which should have paid one million in taxes is fined N50,000 for tax default. The states were mercilessly robbed by business people.

    Finally, even those who paid received kick-backs from state tax officials, after bribing to pay less than they should. It was an inefficient and corruption prone system. The States seldom generated anything close to the amount they should and could not have discharged their obligations to the people.

    As the Sales/Marketing Manager/Director for five major companies during those years, I was fully aware of what was going on.

    THEN CAME THE CHANCE FOR VAT

    “The economist, like everyone else, must concern himself with the ultimate aims of man.” Alfred Marshall, 1842-1924, VBQ p 45.

    By 1985, when the price of crude oil tumbled to as low as $9.90 per barrel; the country was highly indebted and there was urgent need for new ideas to help us recover. I was no longer involved in Marketing brands and in cheating state governments. I was already compiling the book of quotations; when I came across these words by Marshall, the great Economist. I felt like a traitor to Economics, my profession, and to Nigerians. I had participated in grand larceny for several years while working for companies. I needed to do something to repay the people. But, what will it be? Suddenly, the idea of VAT to replace the ST came up. I knew that, despite its few deficiencies, the centrally-collected VAT was best for us. I jumped into the battle. Incidentally, we were thinking of VAT contributing about N60 billion per annum. VAT contributed about N1.56tn to actual Federally-collected revenue in 2020, or 28.5 per cent of the total.

    I admire Governor Wike a great deal. I will urge him to re-think the decision to pursue the idea of states VAT collection. It is an ill-wind; it will blow all away.