The governments of Lagos and Rivers states are ready to begin the collection of Value Added Tax in accordance with the judgement of a Federal High Court in Port Harcourt. The Rivers State Governor, Nyesom Wike, has signed into law the bill that empowers the state to collect VAT, while the Lagos State Government has notified all the stakeholders involved in the payment and receipt of VAT of its resolve to enforce the judgement to the letter.
This is in spite of the opposition by the FIRS, which already filed an appeal against the judgment, and some northern states, who said they preferred the Federal Government to continue collecting the tax.
Justice Stephen Pam, who delivered the judgment on August 10, 2021, also restrained the FIRS and the Attorney General of the Federation from demanding the taxes from the residents of the Rivers State, which by implication affects other states, as reported in THISDAY newspaper.
VAT is charged on the supply of goods and services in Nigeria, including those imported into the country, except the goods and services specifically exempted under the VAT Act.
By virtue of the Finance Act 2020, which took effect on February 1, 2020, the Value Added Tax charged on affected goods and services rose from five per cent to 7.5 per cent. Yearly, VAT contributes significantly to the total revenue generated by the government.
Prior to the court judgment, however, the FIRS, an agency of the Federal Government, had the responsibility of collecting VAT on behalf of the 36 states of the federation and the Federal Capital Territory. The sum collected is then shared among the three tiers of government, with the Federal Government taking 15 per cent, the states 50 per cent; local governments 35 per cent.
While signing the Valued Added Tax Law No. 4 of 2021 and some other bills into law, Wike said, “We (Rivers State) are standing on the part of history as representatives of the state to have taken the bull by the horns to challenge the illegality of the Federal Government through the Federal inland Revenue Services.”
Justifying the reason for filing the suit, Wike added, “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?”
In Lagos State, the Commissioner for Information and Strategy, Mr Gbenga Omotosho, said that 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.
VAT has been a major contributor to the consolidated revenue fund. In 2020, for example, total VAT collection was about N1.53tn, with import VAT being N348bn while foreign non-import VAT was N420bn and local VAT amounted to N763bn.
In August 2017, for example, 55 per cent of the revenue generated by the Federal Government from VAT was being collected from Lagos State alone.
Meanwhile, there has been an uneasy calm over the judgement, because according to tax experts, no fewer than 30 states would likely face huge drop in their revenue from the federal allocation, which is the main source of revenue for the states.