AS controversies over collection of Value Added Tax, VAT, swirl at federal and state levels of government, the Federal Inland Revenue Service, FIRS, said it has the backing of the Value Added Tax, VAT Act to collect the tax across the country.
This came as Governor Nyesom Wike of Rivers State, yesterday, threatened to “take over” all offices of the Federal Inland Revenue Service, FISR, in Port Harcourt, if the government agency continued with its “bullying,” saying that he cannot continue to beg the Federal Government for what belongs to his state.
Wike said that there was no going back on the state collecting VAT, in the state, adding that he does not care if heaven falls, as Rivers money was not meant for “Abuja people” but for the development of his state.
Meanwhile, -Speaker, Lagos State House of Assembly, Mr Mudashiru Obasa, yesterday, disclosed that Lagos State generates over N500 billion in VAT annually just as the Attorney-General and Commissioner for Justice, Mr Moyosore Onigbanjo, SAN, said that the state will execute judgment granting states the power to collect VAT, saying no booby trap will affect its implementation.
In another development, Gombe State has made an appeal to Southern state governments to reconsider their push to keep VAT revenues generated in their states.
However, members of the Organized Private Sector, OPS, have weighed in on the contention over right to collection of VAT, noting the development was unhealthy for business and underscores the imperative for fiscal federalism
Recall that a Federal High Court sitting in Port Harcourt, had last month in a suit brought by the Rivers State Government held that the state government had the powers to collect VAT within its territory.
The FIRS, on Monday, prayed the court to stay execution on the judgment, but same was refused by the court.
FIRS Group Lead, Special Tax Operations Group, Mr Matthew Gbonjubola and his Digital and Innovation counterpart, Mrs Chiaka Ben-Obi, spoke on the position of the organisation, in Abuja, yesterday. Gbonjubola said: “VAT came into being by virtue of the VAT Decree of 1993 which is a federal law. It came into effect on January 1, 1994. According to the law establishing the VAT, the FIRS is the legitimate authority to administer it.
“The VAT law abrogated all sales taxes at the time it was enacted and upon the advent of the current democratic dispensation, the VAT decree became an Act of the National Assembly and it has remained so until now.”
Why states can’t collect VAT
He explained that the input/output mechanism of VAT and the fact that the bulk of VAT revenue comes from imports, as well as, federal Ministries Departments and Agencies, MDAs, contractors makes it impossible for states to administer the tax.
He said: “There are three very important avenues of VAT collection. One is VAT on imported items — which is collected at the ports of entry. As at today, there is no state government that controls any port in Nigeria, which is why it is a lot easier for the FIRS to administer VAT.
“The second source of VAT is the one we pay when we go to shops and buy things. The third, which contributes a substantial volume of VAT is the one paid by MDAs when contracts are awarded — either contracts for construction, supplies, or services. That is why if you look at VAT today, after Lagos, because we have many ports in Lagos, FCT comes second because the majority of contract awards are from the federal ministries and VAT collected in respect of those ministries are from the Federal Government.
“As to the incidence of VAT, VAT is practiced on an input/output mechanism. What it means is that for a business either importing or buying products for resale, that business will pay VAT either at the port, if it is importing or to the manufacturer, if it is buying from a local manufacturer.
“And when that business pays VAT, it is considered as an input tax, such that if they begin to sell in any part of Nigeria and charges VAT, to its customers, it is able to recoup the VAT paid either at the ports or to the manufacturers.
“It works only at the national level. VAT cannot work at the sub-national level. There is no country in the world where VAT works at the sub-national level because VAT works on the input/output mechanism. “Just to illustrate it, assuming a business person bought an item, let’s say in Osun State and takes the goods to, let’s say Sokoto State to sell, remember that this business person has paid VAT while purchasing the goods in Osun State, and when selling in Sokoto State, he will charge VAT.
“By the operation of the input/output mechanism, this business person will deduct the input tax paid in Osun State from the output tax charged in Sokoto State and remit any difference to the relevant tax authorities. In this case, the relevant tax authorities handling VAT is the FIRS. It is the same tax authority that received the VAT in Osun State that receives the output tax in Sokoto State.
“So, it is easy to work out the input/output mechanism and there is no issue of the business person being shortchanged. There is no issue of the consumer paying VAT more than once. “However, if this is operated at the state level, it will mean that when the business person is paying that VAT at the state of source, and we have said for instance, Osun State, Osun State will have collected that money.
“And when that business person is selling that same item in Sokoto, they will charge VAT. The dilemma is, how will the business person recoup the VAT paid at the point where the products were purchased?
“Either of two things will happen. Either Osun State will have to refund the VAT collected or Sokoto will have to absorb that loss. That, in itself will create confusion. “It is extremely difficult, if not impossible to operate VAT at sub-national level. And that is why there is no country in the world that does that.”
I’ll take over FIRS offices in Rivers if…—Wike
Governor Wike at a stakeholders’ meeting in Port Harcourt, while addressing business owners in the state, told the oil firms, construction companies and other business operating in the state to start remitting their VAT to the state government beginning this September.
He lamented the injustice in the country, saying Rivers State generated N15billion in June 2021 but got N4.7billion while “Kano produced N2.8billion in June but Kano also got N2.8billionn. Sometimes you don’t want to believe these things exist.”
Wike added: “I overheard the FIRS chairman saying that he will show me the powers of the Federal Government that FG will muzzle the judiciary. It is not my business. The court has decided.
“All these bullying by FIRS, they should mind the state they are bullying. FIRS should be very careful. You don’t bully state like Rivers State. I have the political will to do a lot of things. I am not one of those governors that will shy away. If they continue to bully us, all their offices in the state, I will take.
“I will seal off your premises if you continue paying VAT to FIRS. From this September, we will start collecting our VAT.
“We will not look back but seal up the premises of such companies,” Wike warned, adding that the state does not need the Nigeria Police Force to enforce the collection of VAT but would use the state created security outfit backed by the law.
Further, he said: “The Federal Government surreptitiously lobbied to amend the constitution to place VAT collection under the exclusive legislative list. We have challenged it and we have no apologies to anybody.
“I don’t want to be in the good book of anybody but in the good book of God. I don’t want you to fall prey of the people who think they can use force to take our money. If you want to take advantage and say you don’t know who to pay to, it is a lie, you know.”
Lagos generates over N500bn VAT annually —Speaker
Obasa and Onigbanjo, made the disclosure, yesterday, at the state House of Assembly, Alausa, Ikeja, on ‘A Bill for the law to impose and charge VAT on certain goods and services provided for the administration of the tax and other Related Matters.’
The Speaker, represented by his deputy, Wasiu Eshilokun, said: “Hitherto, the responsibility of collecting VAT is assumed by the FG, through FIRS. This, I reckon is against the messages and spirits of the true federalism that our fathers fought for and that we are currently agitating.
“Lagos State feels financially strangulated and unfairly treated by FG in her administration and appropriation of receipts of VAT. “Lagos State, for instance, generates the excess of 500 billion in VAT form. If we go by generation trend, in tandem with the N2.4 trillion forecasted by the FIRS, Lagos State will be contributing about 55 per cent of the total VAT collectables in the entire country.
“But what do we get in return, some paltry sum. This injustice and inequity are part of the premises that some of the extant agitations are founded.