Imbroglio Over Value Added Tax Collection as States, FIRS Disagree

Imbroglio Over Value Added Tax Collection as States, FIRS Disagree

…Court Refuses to Grant Stay of Execution Application by FIRS. … Rivers, Lagos Begin Implementation of Judgement. …Governor Masari Kicks as FIRS Appeal Judgement Stage is now set for a judicial interpretation of fiscal federalism as Rivers and Lagos states set machineries in motion for the collection of Value Added Tax (VAT) in their states

…Court Refuses to Grant Stay of Execution Application by FIRS.

… Rivers, Lagos Begin Implementation of Judgement.

…Governor Masari Kicks as FIRS Appeal Judgement

Stage is now set for a judicial interpretation of fiscal federalism as Rivers and Lagos states set machineries in motion for the collection of Value Added Tax (VAT) in their states while the Federal Inland Revenue Services (FIRS) insist that companies who refuse to pay to it risk heavy penalties.

This imbroglio ensued following the refusal of a Federal High Court in Port Harcourt’s refusal on Monday, to grant a stay of execution request by the Federal Inland Revenue Service, FIRS, seeking to stop Rivers State government from enforcing an earlier court judgement vesting the power to collect Value Added Tax, VAT, within Rivers State on the state government and not FIRS.

FIRS had through a motion on notice applied for a stay of execution on the earlier judgement delivered by Justice Stephen Pam, affirming the constitutional role of the state governments to collect VAT and not FIRS. The judge, however, ruled that granting the order would negate the principle of equity and invalidate his earlier ruling on the matter.

The court judgement is a litmus test towards resolving agitation for the restructuring of the country. While the southern states in Nigeria contribute the larger chunk of Value Added Tax, the Northern states take more when it is being shred from the federation account. Worse still, consumer goods like beer which contribute a lot to the VAT are banned from being consumed in the Northern states.

Consequently, the judgement has pitched some governors in the south like Barrister Nyesom Wike of Rivers state against some of his counterparts from the North notably Rt. Honourable Bello Masari of Katsina state who described the judgement as a recipe for potential economic chaos in the country.

Rt. Honourable Masari made the declaration when a delegation from the Revenue Mobilization and Fiscal Commission, RMAFC, paid him a sensitization visit at the Government House in Katsina. He also added that the judgement has been appealed.

Governor Masari said the implication is that “people will begin to pay double VAT because if you pay VAT in Kano at the point of departure when you come to Katsina you will pay another VAT. If you pay VAT in Lagos it means you will also pay VAT all along the way until you reach your destination. It will bring a lot of burden on the people. That judgment is not fair.

Ruling on the stay of execution application, Justice Pam noted that the Rivers State Government through the state House of Assembly, has duly enacted Rivers State Value Added Tax No. 4, 2021, which makes it a legitimate right of the state to collect VAT. According to him, every court in the country is constitutionally mandated to obey all legislations enacted by both the national and state Assemblies.

Justice Pam stated that since FIRS was, ab initio, acting in error by collecting VAT in Rivers state, the FIRS application is refused and dismissed in the light of the fact that all subsisting law concerning the collection of VAT stands in favour of the Rivers State government.

Shortly after, Governor Wike, in a state wide broadcast declared, “Consequently, I hereby direct the Rivers State Revenue Service, RSRS, to ensure the full and total implementation and enforcement of this law against all corporate bodies, business entities and individuals with immediate effect.

“All corporate bodies, business entities and individuals are advised to willingly, truthfully and promptly comply with their tax obligations under this law to avoid the full weight of the stipulated sanctions, including having their business premises sealed-up.
“I wish to further assure every resident that we shall as usual make effective use of the expected proceeds from this tax to accelerate the development of our state and improve the wellbeing of everyone.”

The governor explained that what the Rivers Sate Government has done is to contribute to the advancement fiscal federalism, in which states can feel empowered to explore their potentials to generate internal revenue to address their development needs.
On its part, Lagos State Government said it had already notified all the stakeholders involved in the payment and receipt of VAT of its resolve to enforce the Rivers Court judgement to the letter.

The Lagos State, the Commissioner for Information and Strategy, Mr Gbenga Omotosho, said the state government would soon commence the implementation of the court judgment even if it had to send a bill to the House of Assembly to amend the relevant laws.

He said the judgment was a reflection of true federalism and the state government had already notified all the stakeholders involved in the payment and receipt of VAT of its resolve to enforce it.

Mr. Omotosho stated, “We are aware of the judgment and we applauded it. In a federation, that is the way it goes. In our pursuit of true federalism, it is a giant step forward. And in fact, we have notified all our stakeholders about the judgment that the Lagos State Government will implement it.

Demonstrating the practicability of the judgement, Governor Wike said “in this Rivers State, we awarded contracts to companies and within the last month, we paid over N30bn to the contractors and 7.5 per cent will now be deducted from that and to be given to FIRS.

“Now, look at 7.5 per cent of N30bn of contracts we awarded to companies in Rivers State, you will be talking about almost N3bn only from that source. Now, at the end of the month, Rivers State government has never received more than N2bn from VAT. So, I have contributed more through the award of the contract and you are giving me less. What’s the justification for it?”

Meanwhile the Federal Inland Revenue Service(FIRS) has continued to insist that taxpayers in the country to continue to pay their Value Added Tax (VAT) to it in order to avoid facing penalties for failing to do so.

The FIRS issued the directive following numerous enquiries to the Service in view of a recent judgment obtained by the Rivers State Government at the Federal High Court, Port Harcourt, which ruled that states, and not the Federal Government, are constitutionally empowered to collect VAT.

The FIRS also said that it has already appealed the Rivers judgment, hence taxpayers should continue to pay their VAT to the FIRS. It also threatened those who refuse to comply with dire consequences.

Ayo Aluko-Olokun
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