Intelligence Report Uncovers Why Governors are Locked in VAT Collection War


Despite the Buhari administration’s insistence that Federal Inland Revenue Service (FIRS) will continue to collect Value Added Tax (VAT) following the ruling of the Court of Appeal on the matter, an intelligence report has uncovered why governors are battling to collect the tax.

News Agency of Nigeria (NAN) reports that Attorney-General of the Federation (AGF) and Justice Minister, Abubakar Malami, said so from New York while speaking on the disagreement over the collection of VAT between FIRS and Rivers State Government.

He explained that the ruling of the Court of Appeal that FIRS and the Rivers maintain status quo favoured FIRS, adding that the revenue agency has been collecting VAT before the dispute arose, over which Rivers approached the High Court.

“The position of not only the Federal Government but indeed the judiciary is the fact that status quo associated with the collecting of VAT should be maintained”, Malami said, adding, “and as far as the judicial system is concerned, the status quo as at the time the parties approached the court, it was the Federal Inland Revenue Service that was indeed collecting the value-added tax.

“So with that in mind, the Federal Government has succeeded in obtaining an order that establishes the sustenance of the status quo, which status quo is that FIRS should continue collection. This is pending the determination of the cases that were instituted by states, particularly the Rivers and the Lagos. The cases are being determined by the court.”

Rivers has already gone to the Supreme Court, praying the apex court to set aside the Court of Appeal’s September 10 ruling ordering it and FIRS to maintain the status quo on the issue of VAT collection.

A three-member panel of the Court of Appeal headed by Haruna Tsammani issued the order being challenged at the Supreme Court by the Rivers government. The state also urged the apex court to disband the panel of the appellate court, which gave the interim order and ordered another one to be constituted to hear the case.

“But one thing of interest is the fact that the Federal Government had indeed taken cognisance of the fact that where there exists a dispute between a state and federal government, it is the Supreme Court that should naturally have the jurisdiction to determine the dispute between the state and the federation.

“And we are taking steps to consider the possibility of instituting an action before the Supreme Court for the purpose of having this matter determined once and for all’’, Malami said.

A political risk consultancy, Menas Associates is however, saying that governors are facing severe revenue crisis. As a result, they are focusing on: trying to grab some of Abuja’s taxation powers; and also recover funds that they claim the latter has withheld.

Excerpt from its Nigeria Politics & Security, a weekly intelligence report on Nigeria says Governor Nyesom Wike’s latest legal challenge to Abuja’s right to collect VAT has reverberated across the federation.

Wike, according to the intelligence report, argues that his state has not been fairly treated in the distribution of VAT proceeds and therefore wants the right to collect VAT themselves.

‘’Other southern states agree and will probably take similar action. One major problem, however, is that it could result in companies having to pay multiple states which will add to the cost of doing business in Nigeria.

‘’VAT is a significant source of income for both the states and the Federal Government. Receipts totalled ₦1,53 trillion ($3.7 billion) in 2020 which was about a third of all revenues that go into the Federation Account.

‘’VAT is currently shared, with Abuja keeping about 15% of total collections with the remaining 85% — minus 4% collection costs which goes to FIRS — shared equally among the country’s state governments. Of the total received by the states, 20% is based on derivation.

‘’But rich states such as Rivers and Lagos have complained that they are being short-changed by the VAT distribution formula. Lagos State reportedly generates about 50% of all VAT that is collected that is non-related to imports or Federal Government contracts which, in turn, is about half of all VAT income.

‘’Wike noted that in June his state generated ₦15.1 billion ($36.37 million) from taxes but only received ₦4.7 billion ($11.39 million) back, while Lagos generated ₦46.4 billion ($112 million) but only received ₦9.3 billion ($22.54 million).’’

Governor Wike equally claimed that a populous northern state like Kano both generated and received ₦2.8 billion ($6.79 million) from the federation pool. This is because, besides all states sharing the VAT funds, 30% of the total is based on population which obviously favours the poorer northern states which have large populations but also generate the least amount of VAT.

Lagos and Rivers are likely to be the principal beneficiaries of a August 9 decision by the Federal High Court in Port Harcourt that only states have the authority to collect VAT. At least 30 other poorer states will be negatively impacted by the ruling unless it is overturned by a higher court.

FIRS is resisting the states’ attempt to remove its right to collect VAT. It was initially successful in appealing the decision but Rivers has now taken the case to the Supreme Court. FIRS has also asked the National Assembly to amend the Constitution to ensure that VAT collection is the exclusive preserve of the Federal Government.

‘’It is, however, unlikely to succeed because it will be unable to obtain the two-thirds majority that is required to amend the constitution. The VAT fight is actually more of a conflict between the poor, but populous, North and the more affluent South rather than one between the country’s two main political parties.

‘’Most southern state governors, irrespective of their party affiliation, support the Rivers State government, while the majority of the northern states oppose its legal case.

‘’The Presidency’s power is also being threatened by other court cases, brought by the state governments, that are challenging its powers to tax, collect and retain certain revenues, including funds recovered from high-profile corruption cases. If they succeed it will put significant financial resources in the hands of governors and some could become as powerful as the Presidency’’, the report says.


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