The Federal Government is considering dialogue towards settling the legal battle between its agency, Federal Inland Revenue Service, and Rivers and Lagos states over the collection of VAT, the Value Added Tax.
In an interview on Channels Television’s Politics Today on Thursday night, the minister of finance, budget and national planning, Mrs. Zainab Ahmed, said that efforts at an out-of-court settlements are ongoing, and expressed hope that there would be a political solution to the issue rather than a protracted court case.
In the words of Zainab Ahmed, “I’m not supposed to be talking about issues in court but I do hope that this problem can be solved by sitting on the table; not on the pages of newspaper or disagreements in court because it is possible to solve it on the table, talking of political solution.
“There are a lot of efforts going on right now. As I said, I don’t want to discuss it because it’s in court so I have to be careful. But there will be a positive political solution. We are working towards an out-of-court solution.”
The Federal High Court sitting in Port Harcourt, the Rivers State capital, had on August 9 ruled that Rivers State and not the FIRS should be the authority collecting VAT and Personal Income Tax in the state.
The FIRS challenged this judgement at the Court of Appeal in Abuja, and in desperation wrote the Senate urging for a constitutional amendment to move VAT from the concurrent to the exclusive legislative list.
The Rivers State Government enacted a law to empower the state to collect VAT. The governor, Nyesom Wike, signed the bill into law on August 19.
Lagos State, whose request for joinder as a respondent in the suit before the Court of Appeal was also granted by the court, also enacted its own VAT law. The governor, Babajide Sanwo-Olu, signed the bill into law on September 10.
However, the Court of Appeal ordered all parties to maintain the status quo on the matter, a ruling the Rivers State Government had approached the Supreme Court to set aside.
On his part, Governor Wike did not rule out the option of dialogue, but he hinted that all concerned would have to first agree that states should be the right-authority to collect VAT.
He had said, “Some people have said be your brothers’ keeper. I have no problem with that, but let us tell ourselves the simple truth. When you agree that it is the states that should collect VAT, we can sit down to say, now we know it is the states, but look at the problems. That is a different thing.”
On the part of the Lagos State Government, the state Commissioner for Information and Strategy, Mr Gbenga Omotosho, told a news correspondent on Friday, “As far as I know, we haven’t got any representation from the Federal Government. But for us in Lagos, it is not a matter of us vs them. It is a matter of justice, fairness and equity. It is a matter of what is good for Nigeria.
“In Lagos, if we get it right, it will affect every corner of Nigeria. Lagos is like a giant carrying on its shoulders the responsibilities of so many others. So, if you encourage this giant to do more, it will and the effect will percolate through other parts of the country.
“If you fix roads in Lagos, goods coming from the port would get to other parts of the country fast and cost of freight would reduce; wear and tear on vehicles would reduce. An out-of-court settlement is an option so long it is going to promote equity, justice and fairness.”
Meanwhile, the Minister of Finance who introduced VAT in 1993 during the late Gen Sani Abacha regime, Dr Kalu Idika Kalu, had advised that that instead of allowing the issue to fester and degenerate into ethnic and political issues, the government should summon the stakeholders and get experts knowledgeable in the subject to advise on how to manage it.
“That is how a government should operate,” he said. “I also think it is better for the government to recognise that there are loopholes in the current tax structure. As I said, these are issues a small team, maybe comprising lawyers, economists and social development specialists, can quickly deliberate on within two weeks, put all the factors into cognisance and come up with the solution.
“It is better to resolve it rather than make it a legal issue. We should be hesitant to push it in a direction we know would create more cleavage in the system.”
Some experts think differently on the VAT issue. Sheriffdeen Tella, a professor of Economics at the Olabisi Onabanjo University, Ogun State, advised against the out-of-court settlement option, which he said would give the Federal Government an upper hand that might be to the disadvantage of the states in the future.
He said, “I believe it is better for the Supreme Court to pass a judgement on the matter. With an out-of-court settlement, the Federal Government can through the National Assembly make a law that would make it impossible for the states in future to be able to exercise their rights.
“The out-of-court settlement will not be seen as legal since it was not ordered by the court. It simply means that it would be used for future reference.
“I think what the Federal Government is trying to do is to prevent a legal situation that may not be easy to resolve in the future. Maybe they cannot see a way out for now and realise that in future they will have to pass a law through the National Assembly in a way that the court cannot override. Since there is nothing approved by the National Assembly yet, whatsoever the court says becomes binding.
“The Federal Government, in the short run, is trying to prevent the state governments from having an upper hand. This would likely not lead to multiple taxation as the states would likely end up collecting taxes, since it is the Federal Government that is calling for an out-of-court settlement.”
Akpan Ekpo, a professor of Economics and Public Policy at the University of Uyo, said that an out of court settlement would only be feasible in a win-win situation. Ekpo said, “If both sides want to settle out of court, we have to see the terms of the settlement whether it would be a win-win. If both sides want to do and we see the terms and conditions to be win-win, then it is good.
“But if it is not a win-win situation, then the Supreme Court should decide, and this may lead to one side taking all. You know the VAT used to be the old sales tax, which is a matter for states.
“I don’t know why they want to opt for an out-of-court settlement but if both sides agree to that, let them start the process, and the states would know if they are gaining something. If the out-of-court settlement is not favourable to the states, they can return to the court to settle the case.”
Taiwo Oyedele, the Fiscal Policy Partner and West Africa Tax Leader at PricewaterhouseCoopers, called for a political conversation to determine the most appropriate VAT system for Nigeria.
Oyedele said, “What I am saying is that whether they settle out of court or they allow the Supreme Court to decide, it will not be the end of the matter. Because there is already a dispute, there are some states who think that states should collect while others think the FIRS should still be in charge.
“So when the Supreme Court makes a judgement it will favour one party. To this end, we still have a problem because tax law is not like an election where you say majority has won and then you move on. When it comes to tax matters and people don’t feel like what they want is what has happened, there is going to be a lot of lobbying to get the national assembly to amend the constitution.
“Because to amend the constitution you only need two-third, they can mobilize that.
“The number of states that will benefit from state administration of VAT are not very many so I sense the possibility that they can mobilize enough states to amend the constitution and put it the way the want it.
“What I am suggesting is that they settle out of court and have a political conversation to decide a proper VAT system that is fit for Nigeria.”