FIRS: Why We Are Against States’ Collection of VAT
Says it works only at a national level and not at sub-national Wike alleges plan to move appeal from Port Harcourt to Abuja court Lagos, Ekiti move to join Rivers in legal tussle
The Federal Inland Revenue Service (FIRS) yesterday explained its opposition to the administration of Value Added Tax (VAT) by states in the country, saying it might stifle businesses and investments.
The federal agency insisted that the decision of the Federal High Court to grant powers to states to administer VAT would make it difficult for businesses to thrive.
This is just as it was gathered that the FIRS recently wrote to the National Assembly for an amendment of the constitution to accommodate VAT in the Exclusive Legislative List of the
1999 Constitution.
The development followed rising agitation by some states to collect and utilise proceeds of consumption tax, after Rivers State secured victory in court on the matter.
Notwithstanding, the Rivers State government announced the commencement of full implementation of its VAT law.
Also yesterday, the Rivers State governor, Nyesom Wike, alleged that he had been informed that some people in government are scheming to move the appeal hearing from the Court of Appeal in Port Harcourt, to the Court of Appeal in Abuja in the hope of securing a stay of execution of the judgment.
He stated this when THISDAY contacted him for a reaction to the alleged plan. "Well, I heard about the development while attending the Peoples Democratic Party (PDP) meeting in Abuja.
“I was told that the FIRS is working to move the appeal to Abuja, but I have not confirmed whether it is true or not. But let it be known that I am standing on the principle of justice and constitutionalism. What I feel is that the right thing should be done. Whether they want to hear the appeal in Kafanchan or in America, let the law take its course.
“I believe the right thing must be done at the right time. This country must move forward and justice must be done. This is an issue of constitutionalism, it's not about Wike,” the governor declared.
THISDAY also learnt yesterday that the Lagos and Ekiti State governments, have concluded plans to file application to be joined in the ongoing legal battle between the FIRS and Rivers.
Just like the Rivers State government, which recently enacted its VAT Law 2021 to regulate the effective administration of VAT in the state, Lagos and Ekiti states have taken steps to enact similar laws on VAT collection. THISDAY learnt that some southern states were equally in the process of enacting laws in a bid to start collecting VAT.
On its part, FIRS has maintained that the decision of the Federal High Court to grant powers to states to administer VAT could be counterproductive.
The Group Lead, Special Operations Group, FIRS, Mathew Gbonjubola, insisted that there was nowhere in the world, where the administration of VAT was done at the sub-national level, adding that the service cannot afford to devolve such powers to states.
Speaking during a media briefing, he said contrary to speculations, the FIRS administers the consumption tax on behalf of the three tiers of government and not for the federal government alone.
He added that revenue from VAT was administered under an arrangement that allows the federal government to collect 15 per cent, states 50 per cent, and local government 35 per cent. He pointed out that the existing arrangement allowed states and local governments to take about 85 per cent of VAT proceeds.
Gbonjubola stated: "The VAT is not paid to the federation account but to VAT pool account for distribution to the three tiers of government. It is after the sharing that the portion of the federal government is paid to the Consolidated Revenue Fund Account.
"VAT works only at a national level but not at a sub-national level. There is no country in the world where VAT works at the sub-national level."
He said the VAT Act differentiated between the Input and Output VAT, explaining that in the former, tax is paid to suppliers on the purchase of taxable goods and services, while output VAT is the tax received from customers on the value of taxable goods and services sold or rendered.
Gbonjubola further explained that the VAT Act allowed taxpayers to offset their input VAT (Allowable Input VAT) against their output VAT, to the extent that such input VAT only related to such goods that were purchased or imported for resale or form the taxpayers’ stock-in-trade used for the production of new products on which output VAT would be charged.
He said where the output VAT exceeded the recoverable input VAT; the taxpayer was expected to remit the excess to the FIRS.
In the instance where the input VAT exceeded the output VAT, he explained that taxpayer would be entitled to a refund of the excess after following the due process as contained in the FIRS Establishment Act.
But with the decision of some states to go ahead with the implementation of the court judgement, Gbonjubola said such refund might not be possible, because the administration of VAT would be done by different tax authorities in the states.
His words, “As to the incidence of VAT, VAT is practiced on an input and output mechanism. What it means is that for a business either importing or buying products, that business will pay VAT either at the port if it is importing or with the manufacturer if it is buying from a local manufacturer.
“And when that business pays VAT, it is accounted for that business as an input tax, such that if it begins to sell in any part of Nigeria, and charges VAT from its own customers, it is able to rescue the importers payment either by port if it is an imported item or to the manufacturer if it was obtained from local producers.
“And this works only at the national level, VAT can’t work at the sub-national level and there is no country in the world where VAT works at a sub-national level. This is because the VAT depends on the input-output mechanism
“For instance, if a business person buys an item in Osun State and paid VAT, takes the goods to Sokoto State to sell, remember this business person had paid VAT when purchasing the product in Osun State.
“So, when selling in Sokoto State, he will be charged VAT and by the operation of the input-output mechanism, this business person will deduct the input VAT payment in Osun state, from the output charged in Sokoto State, and remit any difference to the relevant tax authorities, in this case because there is a single tax authority handling VAT, it is the same authority that will receive the VAT in Osun and Sokoto states.
“It is easy to work out the inputoutput mechanism, businesses won’t be short-changed; there is no issue of consumers having to pay VAT more than once.
“However, if this is operating at a sub-national level, it will mean that when businesses are paying VAT at the state level, the business would have to pay VAT twice in two different states.”
FIRS Seeks to Move VAT to Exclusive Legislative List
To stem the agitations by state governments to be the ones to collect VAT, the FIRS had written a letter, dated July 1, to the National Assembly for the sponsorship of a bill to amend the 1999 Constitution and place VAT administration on the Exclusive Legislative List, as well as establish a Federal Revenue Court (FRC) to sit over tax-related disputes.
The letter was written by its Executive Chairman, Mr. Muhammad Nami, to Deputy Speaker, House of Representatives, Hon. Idris Wase, who also doubles as Chairman, Special Committee on Review of the Constitution.
In the letter titled, "Request for Sponsorship of a Bill for the Establishment of the Proposed Federal Revenue Court of Nigeria and the Insertion of Value Added Tax Under Item 68 of the Exclusive Legislative List," was dated July 1, 2021. The letter was written to the National Assembly while the FIRS was still contesting a suit filed on the collection by Rivers State.
Nami had highlighted the increasing pushback by states to collect and retain the VAT proceeds in their respective states.
Specifically, the FIRS proposed the insertion of VAT immediately after Stamp Duties item 58 Part II, 2nd schedule of the 1999 Constitution, as amended. It expressed concerns that the number of tax cases was increasing annually at both the Federal High Court and the Tax Appeal Tribunal
As a result, Nami said there was an urgent need to establish FRC to speed up the resolution of the tax disputes.
In the letter, the FIRS is pointedly proposing an amendment of Section 251 (1)(1b) of the 1999 Constitution, as amended, by removing the exclusive jurisdiction of the Federal High Court only on anything connected or related to federal tax matters since same would be vested on the proposed FRC.
He said the exclusive jurisdiction of the proposed FRC shall include adjudication of tax disputes arising or connected to the federal tax laws, including Company Income Tax Act (CITA), Petroleum Profit Tax Act (PPTA), Personal Income Tax Act (PITA), Capital Gains Tax Act (CGTA), STAMP Duty Act (SDA), Value Added Tax Act (VATA) and Taxed and Levies (Approved list for collection) Act as well as other laws, regulations, proclamation, government notices or rules related to these Acts.
In addition, the FIRS proposed for the insertion of Section 254G to 254L in the 1999 Constitution to provide for the establishment of the FRC, the appointment of Chief Judge for the proposed court, power to make rules for the proceedings of the FRC and the appointment of judges of the court as well as craving for the exclusive jurisdiction of FRC on federal tax matters.
The service boss said the proposed court would among other things provide both the tax authority and taxpayers a platform for quick resolution of tax disputes and invariably increase tax revenue generation for the federal government.
Nami also said though the judges of the Federal High Court that presently handled tax matters were well grounded in the general practice of laws in the country, there was need for tax matters to be handled by individuals with cognate experience in taxation and tax practices for effective adjudication of tax disputes in Nigeria.
According to him, "Tax disputes are one of the fundamental factors that impede tax revenue generation in Nigeria, hence the need to establish a globally accepted practice of mechanisms for tax dispute resolution in Nigeria."
He pointed out, “The number of tax dispute cases are increasing yearly at both the Federal High Court and the Tax Appeal Tribunal. There is, therefore, an urgent need for the establishment of the Federal Revenue Court to speed up the
resolution of these tax disputes.”
He argued that the success stories of the tax appeal tribunals could be replicated better and more effectively if the FRC was established.
Nami stated that there were currently over 156 disputed tax liability cases across the six geopolitical zones, valued at over N379.43 billion, including $3.38 billion and €800,500.00.
The service said it intended to take advantage of the on-going constitution amendment exercise to realise its objectives.
Rivers Commences Implementation of VAT Law
Wike raised the alarm over underhand moves by the federal government to move the appeal it had filed on the VAT matter from the Court of Appeal in Port Harcourt to the appeal court in Abuja, where the government hoped it could mount pressure on the appellate court to win a stay of execution of the judgement.
The governor, who disclosed this to THISDAY, said he was informed of the development while attending a Peoples Democratic Party (PDP) meeting in Abuja, yesterday.
Wike stated, “I was told the FIRS is working to move the appeal to Abuja, but I have not confirmed whether it is true or not. But let it be known that I am standing on the principle of justice and constitutionalism. What I feel is that the right thing should be done. Whether they want to hear it in Kafanchan or America, let the law take its course.
“Today, it is my turn, it can be another person’s turn tomorrow. I believe the right thing must be done at the right time. This country must move forward and justice must be done. This is an issue of constitutionalism.”
THISDAY also learnt yesterday that the governments of Lagos and Ekiti states had concluded plans to file applications to be joined in the on-going legal battle between the FIRS and Rivers.
But in spite of the controversy the VAT issue has generated, Rivers State, yesterday, said it had commenced full implementation of its VAT Law. Wike made this known yesterday during an interactive session with representatives of corporate organisations in Port Harcourt.
Wike said the enforcement would prevent members of the business community from falling prey to the antics that could be deployed by FIRS officials, whom he said could attempt to use force to collect “what does not belong to them.”
Wike alleged that FIRS had in the past collected VAT in the state with impunity, knowing it was unconstitutional for them to do so. He pointed out that his administration challenged the matter at a Federal High Court in Port Harcourt, where it secured a positive judgement on the matter.
The governor said, "When we challenged the federal government, through the Office of the AttorneyGeneral, and FIRS in court, do you know what they did? They wrote a letter dated July 1, 2021. Remember, it was in 2020 that we filed this action against them. But see how corrupt this country is.
"Corruption is not only about kickbacks, it is also about doing something illegally. We were in court in 2020. Then on July 1, 2021, the chairman of FIRS wrote to the National Assembly through the office of the Deputy Speaker of the House of Representatives.
"He was asking them to amend the constitution and insert VAT under item 58 of the Exclusive Legislative List, when we were already challenging that it is not their responsibility to collect VAT. They knew that what they were doing was not the right thing."
He described as unfortunate the allegation that the FIRS had resorted to writing threat letters to intimidate corporate organisation to pay VAT to the federal agency even after they had lost an appeal that sought a stay-of-execution of the declarative ruling on VAT collection in the state.
Wike urged business operators to be ready to pay VAT for the month of September 2021 and subsequent months to the Rivers State Internal Revenue Service. He said he had already assented to the Rivers State VAT law passed by the State House of Assembly.
The governor warned corporate organisations not to feign ignorance of the state VAT law and declared that the government would not hesitate to seal up the premises of any company that defaulted.
"We are going to inaugurate the Tax Appeal Commission by Friday, which will be headed by a retired judge of the state," Wike hinted, calling the disparity in VAT proceeds and what is given to the states as an inexplicable form of injustice that weakened the performance potential of the states.
He explained, "Let me tell you the injustice in this country. In the month of June 2021, which we shared in July, VAT collected in Rivers State was N15.1billion. What they gave us was N4.7 billion. See the gross injustice, and the money includes contracts awarded by the Rivers State Government.
"This is not an issue of party, it is the issue of infraction of the constitution, issues of illegality. Look at Lagos, it is not the same party with me. In the month of June 2021, the VAT collected in Lagos was N46.4 billion but see what Lagos got – N9.3 billion.
“Have you seen the injustice in the country? VAT collected in Kano was N2. 8 billion and they gave them N2. 8billion. Is there justice in this country?”
Wike described as morally offensive a situation where Rivers State government would award contracts for state roads worth N200 billion and the FIRS would allegedly receive 7.5 per cent of the amount as VAT to be distributed among the states.
“So, you allow me to call the big companies, award contracts to them, then you, FIRS, come and collect the tax and then go and distribute it to other states, who are not awarding contracts. How does it sound,” he asked.
The governor said nobody had been courageous enough to challenge the alleged illegality perpetrated by the FIRS, saying history would be kind to Rivers State to have mustered the courage to speak out and also challenge it.
"I overheard the FIRS chairman saying I'll soon know the power of the federal government,” Wike stated. He added, “And that they'll show me that they have the power to muzzle the judiciary. You can muzzle them as you want. Let the Court of Appeal and Supreme Court interpret the law so that all of us will go and rest.
"Use all the power you want to use, but history will be written one day and those who will allow themselves to be used to muzzle and misinterpret the law will face God one day.”