Whether the recent ruling of the Federal High Court which stated that the state governments should collect Value Added Tax (VAT) and Personal Income Tax (PIT) will lead to a legal tussle between the states and the federal government is almost a given. Already, the Federal Inland Revenue Services (FIRS), speaking through its Director, Communications and Liaison Department, Dr Abdullahi Ismaila Ahmed, had made it clear that they would appeal the court’s decision and the Office of the Attorney General of the Federation and Minister of Justice, Abubakar Malami (SAN), may also do the same sooner or later.
Of course, it is the right of any individual or group to challenge whatever court ruling they do not agree with up to the highest court in the land, the Supreme Court, just as it was the right of the Rivers State Government to seek the interpretation of the section of the constitution that wasn’t clear to them pertaining the collection of taxes.
During an interview on national television on Tuesday, Governor Nyesom Wike, stated unequivocally that the state needed a judicial pronouncement on the issue of VAT and PIT collection that had been a controversial issue for decades. He said, “We felt, as a state, that look, states have been encapsulated. States have been enslaved. States have been turned into beggars. Every state that is broke runs to the federal government when, in the real sense, you have areas where you should raise revenue to take care of your state. Such areas have to do with collection of taxes; part of it is the VAT.
“And there has been the contention that VAT should be or is within the purview of the Federal Government and we said, let us go to court and ask for the interpretation of who actually is responsible for the collection of these taxes. And it is not just for the interest of Rivers State. It is for the interest of the entire states”.
Not a few persons have asked where Nigeria got her own version of federalism which gives so much power to the federal government while the other two components – states and the local governments — must depend on the centre for their existence and sustenance, almost turning the country to a unitary state. Some analysts argued that though it is the constitutional responsibility of the states to collect VAT and PIT; VAT law was introduced in 1993 because only the federal government had the capacity to collect them. What that “lack of capacity” means even when states like Rivers have structures and qualified personnel who have competently been handling revenue and tax-related matters for ages, remains vague.
The truth is that there is no way our federalism can be strengthened if the three tiers of government are not allowed to carry out their responsibilities as empowered by the constitution. Not too long ago, Edo State Governor, Godwin Obaseki, raised alarm over the practice of states converging in Abuja at the end of every month to share revenue allocation, saying that such convention is no longer tenable and it will continue to hinder development in the states and country at large.
Our federation is such that monthly revenue accruing from oil, corporate taxes, VAT, customs, and other levies are shared across the three tiers of government- federal, states and the local governments after 13% of any revenue made from natural resources is paid to the origin states of those resources and other deduction associated with collecting revenues is made. In line with the sharing formula, the federal government takes 52.68%, the states share 26.72% while the local governments get 20.60%. Each state gets its own share of the revenue based on a “Horizontal Allocation Formula” with a few factors put into consideration.
With the assurance of the monthly income, many states hardly look inward for other sources of income. Reports have it that up to 14 states fund at least 90% of their budget with their FAAC allocations. Agriculture, manufacturing and other economic activities that sustained the states before the discovery of oil have been neglected and what some state chief executives virtually do is wait for the month end to go for the allocation, a chunky percentage of which will be embezzled.
The Port Harcourt Federal High Court’s ruling has, therefore, presented an opportunity for the governors to know that they can actually take charge of how VAT is generated in their states and use it to develop their states. It has opened the financial door for all the states in the country to increase business activities in their areas so as to generate more VAT.
Of course, that does not mean that state governments should start breathing down the necks of Small and Medium Enterprises (SMEs) with all manner of taxes. These businesses are already groaning because of multi taxes they are compelled to pay, originating from the state, local government and all that and adding to that may be counterproductive.
There is hardly any state in the federation that is not endowed with abundant untapped resources. It is time the state governors put their personal interests behind and think of how to utilize the human and material resources in their domains for the betterment of their states.
It is, therefore, hoped that other states will file behind River State, putting politics, ethnicity or other biases behind and fight for the restoration of their constitutional rights. They should seek out other provisions of the constitution that need interpretation and ensure that is done so as to deepen our democracy and federalism. The federal government, on the other hand, is expected not only to gloss over these constitutional matters but rather let the states evolve in the interest of all and sundry.

By: Calista Ezeaku