LEGAL IDEAS FORUM

VAT War And the law on a voyage towards an unknown destination upon the clamour for better fiscal federalism : the need for appellate decision amist ethnic/civil unrest in Nigeria.


PART 1
The decision of Justice Stephen Pam of the Federal High Court Port Harcourt Division, Rivers State on the 9 day of August, 2021 has raised so many legal argument for and against the collection of VAT by the Federal Inland Revenue Service (FIRS) as the matter is on appeal presently. The learned Law Lord held within the spirits and letters of items 58 and 59 of the Exclusive Legislative list of the Constitution that the legislative competence of the Federal Government was limited to profits, incomes and capital gains tax, excluding VAT, technology levy, education and withholding tax in Rivers State and by extension all other states of the federation. This prompted the Governor of Rivers States, His Excellency Barr Nyesom Wike to sign the Rivers State Value Added Tax Law on the 19th of August, 2021 in order to regulate the administration of tax in the state.
However, before the Rivers State law, in October 2019, the Federal High Court, Lagos Division, in the Registered Trustees of Hotel Owners and Managers Association of Lagos v. A. G. Federation & Others upon considering the validity of the Hotel Occupancy and Restaurants Consumption Law of Lagos State upheld the powers of the Lagos State Government to charge and collect Consumption Tax from hotels, restaurants and event centres within the State. The Court held that based on the Constitution and the Taxes and Levies (Approved List for Collection) Act, the power to impose consumption tax was a residual power within the exclusive competence of States. It restrained the FIRS from imposing VAT on goods and services consumed in hotels, restaurants and event centres as this was already covered by the Lagos State Law.The court declared section”s” 1,2,4,5 and 12 of the VAT Act as being inconsistent with section 4(2),(4) (a) & (b), (7)(a) & (b) of the Constitution and consequently unconstitutional and invalid. The court granted perpetual injunction against FIRS from collecting VAT from hotels, restaurants and event centres in Lagos.
Also In Emmanuel Chukwuka Ukala v. FIRS & A.G. FEDERATION in Suit No. FHC/PH/CS/30/2020, Hon. Justice I. O. Oshomah sitting at the Portharcourt Division of the Federal High Court, on 11th December, 2020, expressly held that the National Assembly had no power to enact the VAT Act. The plaintiff had asked the court to declare that there was no constitutional basis for the imposition, demand and collection of VAT by FIRS from him since the constitutional powers and competence of the National Assembly were limited to those specifically listed in Item 59, which did not include VAT or any other species of sales tax. The court, therefore, declared the VAT Act a nullity.
Few days ago it was reported that the Federal High Court Port Harcourt Division refused an application by the FIRS to stop the Rivers State Government from execution, Rivers State Government are ready to commence VAT administration while the FIRS keeps warning individuals and businesses to pay VAT to them to avoid penalties. Accordingly, it has also been reported that the Court of Appeal have made an order staying the execution of the judgement for purposes of putting the ‘res’ at status quo between both parties, but the Attorney General of Rivers State have reportedly filed an appeal to the Supreme Court making sundry prayers against the ruling of the Court of Appeal on the interim order.
It should be noted that according to the VAT Act, 2004 (as amended in 2020), FIRS by section 7 is charged with the administration, management, and collection of VAT in Nigeria. The current rate is 7.5% having been increased from 5% when signed into law in January 2020. Once the VAT is collected, the agreed sharing ratio is applied. The Federal gets 15%, States get 50% and Local Governments get the balance of 35%. Before all these, the FIRS keeps 4% as the cost of collection. The derivation principle is certain amongst the federal, State and local Government and 20 percent of the pool is shared in that basis.
Amidst this fiscal tussle there have been many views from public analysts, tax practitioners, professional tax bodies/ institutes amongst others for and against the collection of VAT by States. However, before I proceed I keep wondering why the federal government made laws for VAT when it is no where to be found in the Constitution for many years without the objection of the States as it is happening now! What generated this consciousness is another question to decide before reaching a verdict.
In his speech, the Governor of Rivers State Nyesom Wike advanced reasons for collection of VAT by Rivers State, revealing the statistical analysis of distribution of benefits from the pool to states of the federation without due preference to contributory capacity of the state and also the reference to Sharia barring the sale of alcohol while the states concern still share from the VAT pool. Mr Chukwuka Ukala SAN also advanced Constitutional arguments against the collection of VAT by the federation and reportedly the Attorney General of Lagos State have applied to joined as a party to the suit. On the other divide, Public analyst like Simon Kolawole in his article ‘ VAT War: Ending the War’, made calculated and scrupulous analysis of the consequences of this war and opined that the federal government may not be on the loosing side as so many states may suffer the outcome of the war, he said in 2020, Nigeria earned N1.531tr from VAT. While local VAT was N763bn, foreign VAT — collected by FG — was N768bn. Therefore, rather than take just 15% (N230bn) from the N1.531trn, FG may now pocket the entire N768bn from foreign VAT since it does not go into federation account and may not be subject to the regular sharing formula. That would deprive the states, Rivers and Lagos inclusive, of about half of the total VAT revenue. The FCT may also win as it generated N202bn in VAT last year but got only N34.6bn as its share, but what becomes the fate of low economy States in a federalism like ours? Quickly, Akinyemi Ashade noted that the states government have also attempted to collect tax on imports of goods and services which is clearly within the competence of the federal government but the Nigerian Port Authority has refused to work with them, this shows some level of contention and may lead to fiscal anarchy. Research gathers that Canada, Mexico, Australia, among others, utilise one form of “equalisation fund” or the other to support States with lower capacity to raise revenue. Belgium has the “national solidarity intervention” to support some regions, this is same with Germany and even India, but to them, Nigeria is going a different way. It seem the consensus of Nations favours a centralise tax system.
On the whole, analyst like Niran Adedokun has opined that the tax war seem more political than economical and I see some reasons with his submissions. The only time Nigerian leaders corporate is when sharing of money is involve and this has even eaten into the sub- structures and consciousness of the people, when will Our leaders forget their political differences and work towards nation-building? Worries abounds, for instance Director General, LCCI, Dr. Chinyere Almona, said: “The first concern of the Chamber is the confusion that businesses face as to who is in charge of VAT collection. This is not healthy for the business environment. Companies may soon be subjected to harassment from the FIRS and the states’ revenue services demanding the same tax. Businesses may also be subjected to a cumbersome process by the states that may not already have the required operational and transactional structure to collect VAT. The Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) believes that collection of VAT by states will help in rebalancing human resources distribution away from Lagos.Speaking at a pre-conference briefing to announce its 45th annual conference and dinner in Lagos, President of ICSAN, Gbenga Owokalade, said: “The bulk of the people who make life easy in Lagos, they are not Lagosians. They came from other states. So, maybe it will help us to even distribute the population to the right places.
He continued,“So people who have also migrated to Lagos because we think that Lagos is more prosperous, it is a matter of going back to our different states and ensure that we put in place those same methodology that will ensure that our states also become more viable. There is no state that is not endowed. What we have created for us as a nation is that we have allowed the easy way out to run our lives and that is where we have found ourselves.” Again the Chartered Institute of Taxation Nigeria (CITN) in their recent report said they await the decision of the supreme Court on this issue before taking a stand.

This is issue is becoming more contentious following the ethnic/ religious colorations of the agitations and the claim of who is rich and richer, it is to me a tip of an eyes bare towards the struggle for any form of restructuring, it has huge political/territorial implications and can make or mar futher and better fiscal federalism. According to Upton Sinclair, “it is difficult to get a man to understand something when his salary depends upon his not understanding”. This is a national issue and the end shall determine how other issues of national concern would be handled. It is a time for statemanship, a time where our leaders must come together to resolve for a win win for all.
While it seem the states has the uphand in this issue, the FIRS being a federal agency are considering possible amendment of the Constitution to include VAT in the exclusive legislative list. While constitutional amendment may lay the matter to rest in their favour, it Should not be forgotten that everything must not end upon contention or war in Nigeria, there come a time when matters should be settled amicably considering diverse interest.
As the remaining part of the war unfolds, it is expected of the Judiciary (possibly the supreme Court) to display her wisdom as a court of law and Justice taking into consideration the fragile state of the Nigerian Nation, it Should consider it self as a court of public policy with the aim of interpreting the law for Justice to be done. Just like the heading of this poser has noted, the law may be on a voyage to an unknown destination. Let’s watch.

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