Again, On VAT Collection

The judgment by Justice Stephen Pam of the Federal High Court in Port Harcourt on the lawful authorities to collect Value Added Tax (VAT) and Personal Income Tax (PIT) has continued to provoke fundamental issues in our polity. The court had on August 8, this year, maintained that only the Rivers State Government and not the Federal Inland Revenue Service (FIRS) was authorised to collect VAT in the state.
Pam had afterwards dismissed FIRS’ application for a stay-of-execution, holding that granting it would invalidate the principle of fairness. That prompted the Rivers House of Assembly to pass a bill on VAT collection. Rivers State Governor, NyesomWike, has also assented to the bill, making now a law in the State. Lagos State has followed suit while many other states have initiated processes of making similar laws in their states.
This goes hand in hand with the fiscal federalism that Nigerians have been calling for all along. Obviously, the VAT law will contribute enormously to an increase in revenue and to the development of infrastructure in the states.
However, soon after the passage of the VAT legislation, a three-man panel of the Court of Appeal sitting in Abuja led by Justice HarunaTsammani, in an appeal filed by the FIRS, ordered all parties to maintain the status quo and refrain from acting in a way that would give effect to the VAT judgment of the Federal High Court. But the stay-of-execution order by the court was mucked up in contention, with some legal experts including Mike Ozekhome (SAN) interpreting it to mean that Rivers State still had the power to collect VAT until determined otherwise.
But in a fresh twist, the Rivers State Government has entered an appeal at the Supreme Court to challenge the order of the Court of Appeal in the VAT dispute between the state and the FIRS. In the suit instituted by a Senior Advocate of Nigeria (SAN), Emmanuel Ukala, alongside three other senior lawyers representing the government, the state is imploring the apex court to set aside the order of the Court of Appeal which directed it to maintain the status quo on the collection of the contentious VAT pending the determination of an appeal filed by the FIRS.
It must be observed that the impudence and impunity earlier demonstrated by the federal agency in compelling firms in the state to remit VAT to it despite losing out in an application for a stay at the High Court are disgusting and reproachable. That act or the thought of it was ill-advised and provocative. Indeed, if the state had followed suit in implementation of the State’s Law on VAT, it would have created a state of anarchy and those who like to blow up issues to paint the state in unsavoury terms to run it down and favour their paymasters would have had a field day.
We therefore salute Governor Nyesom Wike and the State Government for the restraint and maturity exhibited in this matter despite the obvious provocation. As a Federal Government agency, FIRS must constantly ensure that its operations are regulated by the rule of law. After all, Rivers State acted in its right to demand and collect VAT and approached the court for relief and got it. FIRS cannot determine what court order to obey or ignore.
As the feud exacerbates over the VAT collection, the Federal Government has similarly approached the Supreme Court for an ultimate resolution of the row. What is ambiguous in this latest action is whether the suit will not amount to an abuse of court process, as it is already before the Court of Appeal for determination. Also, it is doubtful whether the apex court will assume jurisdiction in the trial, since it had declined magistracy in a related matter between Lagos State and the Federal Government.
Lagos State had sued the Federal Government in 2014, seeking a ruling to repeal the VAT Act because it was outside the legislative remit of the federal authorities to collect the tax. The court, however, ruled in favour of the preliminary objection of the Attorney General of the Federation that the Supreme Court lacked original jurisdiction in the matter as it was a dispute between a federal agency and Lagos State and not between the government in Abuja and the Lagos State Government. This is on the basis that VAT is collected by the FIRS, a federal agency.
Again, it emerged recently that the House of Representatives was contemplating legislation that would further empower states to receive VAT and as well control the resources domiciled in their territory. The bill is titled “An Act to Alter Item 39, Part 1 of the Second Schedule of the 1999 Constitution as Amended to Substitute and Move the Item from the Exclusive Legislative List to the Concurrent Legislative List”, co-sponsored by Hassan Usman Sokodabo and John Dyegh. This move might upset the applecart, as it is bound to strengthen the states in their dispute with the Federal Government.
Just as the disputations rage with court litigation, we uphold the cutting-edge action of legislators from the House of Representatives to side with the states. We recall reported attempts by the Federal Government and its agents in the wake of the VAT controversy to smuggle a bill into the National Assembly to place VAT collection on the Exclusive List. Governors should therefore give countenance to their representatives in the National Assembly in their quest for states to be self-sustainable.
The arguments made in certain quarters that collection of VAT by the states will impoverish many others in the federation are insufficient and do not hold up. Rather, it will promote the establishment of a suitable fiscal federalism.
We believe that the Rivers State Government has a strong case in the current legal wrangling and will surely attain justice if the matter is well adjudicated. Since the essence of the disagreement is about equity, justice and fairness, we also expect that the final court decision on the issue will also enrich the country’s jurisprudence and reinforce how citizens understand and partner with the law.
Indeed, the most outstanding message from the VAT judgment is that the instrumentality of the law which Governor Nyesom Wike exploited can be applied to correct many of the hoarded and accumulated wrongs in our federal structure. The Federal High Court judgment already indicates that the Federal Government has been exercising powers it does not have.
It is patently erroneous that the federal authorities impose VAT on the same goods and services, upon which state authorities still demand ‘state tax’. We likewise think as it is in diverse climes, that the tax on consumption which VAT represents cannot be collected by the Federal Government. We equally question the justification for distributing the proceeds of VAT generated from the sales of alcohol with states that have not only prohibited its consumption, but wilfully obliterate the products.
While we deplore the infinite recourse to ethnic baiting by those who define every question in North-South rhetoric, and perhaps, muddling the waters on the VAT judgment, this is the moment for the FIRS to turn on its thinking cap on how to cope with declining revenues beyond battling for every crumb with the states. The lesson the government in Abuja ought to learn from the reactions to the VAT judgment is any tax system that fails to meet the twin stipulations of efficiency and equity in a disparate nation such as Nigeria cannot survive.