The legal tussle around the collection of Value Added Tax (VAT) in the country takes a new turn, with the latest appeal court’s order in Abuja, asking all parties to maintain status quo and to refrain from taking actions that will give effect to the federal high court order in Rivers state, which seemed to favour the Rivers state government in the ongoing legal dispute over the VAT laws between the Federal Inland Revenue Service (FIRS) and the Rivers state government and, with the latest application by Lagos state government asking to be joined as co-respondent in the civil motion filed by the Federal Inland Revenue Service (FIRS) asking for a stay of execution of the federal high cour’st order which declared that Rivers state government has the right to collect Personal Income Tax and Values Added Tax in the state.
The application which was filed on behalf of Lagos state government by the Attorney General of the state, Moyo Sore Onibanjo (SAN) is asking that the state be joined in the motion filed by FIRS because the interest of the state is at stake in the matter and that it will amount to breach of fair hearing, if the state is not joined as respondent in the proceedings, while the council to the FIRS, Mahmoud Mogaji is urging the court to hear the main application as that is of the utmost priority.
Meanwhile, in the midst of these litigations, the Lagos State governor, Babajide Sanwo Olu on Friday, last week signed the state’s value added tax bill into law after it was passed by the state’s House of Assembly on Thursday.
According to a statement signed by the Lagos State commissioner for information and strategy, Gbenga Omotosho, the law was signed by the governor to impose and charge duties on certain goods and services within the state and this has now become a law in the state.
As the debate concerning who, between the state and the federal government has the right to collect Personal Income Tax and VAT continues, there is a growing question among Nigerians as to what the latest appeal court’s order for parties to maintain status quo, implies in this case that appears to be a sort of clash of authority between the Federal government and the governments of some state , as Kogi state governor, Yahaya Bello has declared that the state’s VAT and personal income tax would still be collected by the FIRS.
The questions now being asked in the face of the controversies resulting from the conflicting courts’ orders is the question of where the tax payers should turn with their taxes ? Do individuals or corporations pay their VAT to the states or the FIRS, or do they just hold on to their monies while the cases last in court ? There is also the question of who benefits and who loses in the current stalemate between the affected states and the federal government ?
While the general arguments in these cases seem to revolve around the issue of fair and equitable distribution of the nation’s resources and fiscal federation, the legal, socio-economic and political implications of the whole matter is worth the attention and consideration of Nigerians so that by the end of all this, we would have had a revenue and tax regime system that will permanently address the issue of equitable and fair sharing of the nation’s resources in the best interest of all nigerians.
In a Channels Television programme, Politics Today, last week, Friday’s edition, the panelists which compromises of legal, economic, tax and constitutional experts all brought in their respective perspective into the discussion in order to provide clarity for many Nigerians who are perhaps still confused as to what all these portends for the tax payers as well as the states.
The Legal Perspective
One of the guests on the programme, Dr Ebun Oluwa Adegboruwa (SAN), when asked by the programme’s anchor, Seun Okinbaloye, what the declaration by the appeal court for parties to “maintain status quo” in this case means, said that in law, when a case of appeal is before the court, the court needs to be allowed to determine the merit of the appeal and that parties should not resort to self-help or take steps that may over-reach the hearing of the appeal, such that even if judgement were to be given, it will become a case of fait acompli, whereby parties may not be able to restore themselves to the position they were before the appeal could be held.
He said the appeal court’s order cannot be extended to Lagos State as it is not originally a party to the judgement that is under appeal even though, it has asked to be joined as respondent in the suit, it has not been formally joined as a party and that since in any case, the application could be granted or denied, it may be over-reaching to extend the appeal court’s order to Lagos State since it has not been officially joined.
He said status quo in this instance can only apply to parties in the Port Harcourt’s federal high court judgement which is in this instance , the Rivers State government and the FIRS of which the appeal is still pending and that it means, both parties should maintain the position they were before the order was given and that since with the federal high court’s judgement in Port Harcourt, the Rivers state house of Assembly have either correctly or erroneously passed the state’s VAT bill into law, authorising the collection of VAT by the state and, with the Lagos State government signing the same bill into law, it is doubtful if the two pieces of legislations are subject of the pending appeal and therefore, the status quo would be in respect of the subject matter of the federal high court in Port Harcourt.
He called on all sides to seek a common ground as he blames the current APC administration’s failure to restructure the country according to their 2015 campaign manifesto where article one states that it will amend the Constitution to achieve devolution of powers, fiscal federalism as well as state police .
He concluded by stating that the question at hand goes beyond value added tax as it touches on various aspects of our national life and we must start thinking of shedding the weight on federal government by allowing the states and local government to exist and, practicing fiscal federalism in order to stem the problem of over depence of states on the federal government.
The Economic Implications
On the likely implications of the whole issues on the Nigerian economy in terms of the effects on the investors and their investments, another guest, Dr Muda Yusuf, an economist and a fmr DG, EFCCI, said there is a cause for worry with the latest turn of events because of the uncertainty that has been created as to who should administer the Value Added Tax.
He said to some extent, the appeal court’s pronouncement has provided some clarity on the issue for now, but that he’s more worried of the bigger issue of multiple taxation as this is one of the greatest challenges faced today by investors and that they face this problem in the hands of local government, state and federal agencies and sometimes, even non-state actors such as area boys so, for many investors, apart from paying the statutory taxes to all the federal, state and local government agencies, they still have to pay all forms of registration and renewals fees to various other regulatory bodies hence, the problem of huge burden of taxation for investors and, that if going by interpretations of the pronouncements of the courts, there is the risk of having two VAT laws vis-a-vis the federal government and state government fiscal laws and that this is a matter of concern for the investing communities.
He further spoke of equity particularly from the perspective of the investors because there’s a relationship between amount of tax collected and the volume of economic activities in a particular geographical location and, the amount of what he termed “negative externalities” which he said are the results of the fallouts of economic activities that generated the tax revenue in the first placed and this must be given considerations.
He opined that from the point of view of equity, in any jurisdiction where a particular revenue is being generated, a significant portion of the proceeds should go to the entity in order for it support and maintain the infrastructure and facilities that enable the economic activities to take place in the first place.
He used the case of Ogun state which have the largest concentration of manufacturing firms in the country but never seemed to benefit from industries company tax , VAT, imports and custom duties generated within the state as all they get is just the PAYE, in a state where less than 30% of the population are income earners.
He further stressed that in regards to equity and fairness to both the investors and the location of their investments, there has to be a strong relationship between the revenue generated within a domain and what it gets back from the tax proceeds because of the negative externalities occasioned by the economic activities in that domain.
He summed up by arguing for the need to consider the issue of ease of tax administration, wether it is easier for the states or federal government to collect this taxes.
Is Our System Unitary Under The Guise of A Federation ?
The questions of fiscal federation brought to the fore the need for a comparison between federalism as practiced here in Nigeria and federal systems of other climes, and another guest, Mr Yomi Olugbenro, a West African tax leader at the Deloitte said, he considers the whole affairs intriguing as it touches on the very heart of the issue of fiscal federation which has Long generated controversy in the country.
He identified a fundamental principle which he called the principle of certainty because tax payers need to know exactly how much they are expected to pay,at what rate, to which government agency,at what intervals and it has to be convenient fundamentally for the investors.
He said the current situation at best would leave tax payers confused as to which of the courts’ orders should guide the payment of their taxes to the state.Do they go with the Rivers State high court’s judgement that declares VAT null and void, which means Rivers State government can even ask for refund of all that FIRS had been collecting from the state or, do they recourse to the specific VAT law signed by the Rivers State government or, do they just go along with the latest appeal court’s order for all parties to maintain status quo ?
He added that Nigerians need to understand that beyond the euphoria being created by the fact that we are beginning to, by the judicial process, get the states to get parts of the powers that Nigerians have long clamored for, there are certain implications for both the tax payers and the states , in terms of what he referred to as “the convenience principle” and how much this seeming gains affects the ease of tax administration, as well as whether the affected states would still be able to generate adequate tax revenue.
He also said the states need to consider wether this will in the long or short time, lead to increase or decrease in the tax revenue they will generate.
He said but for the tax payers, their are multiple sides to be considered, which include the issue of the general consumer who purchase goods and services that are liable to VAT and that if going by the new Rivers State law, the rate of tax it imposes increases to 7.5% and if we should go by the claims of the FIRS , using the latest appeal court’s interim injunction as basis for it’s legitimate rights to still collect the VAT, the rate of tax imposed is also 7.5% so this he said invariably means that Nigerians will still have to pay 7.5% tax to vendors who then forward same to the various agencies that collect the these taxes.
So there will be confusion according to him , for firms operating in Rivers state as to wether they should pay their taxes to Rivers State and those operating outside the state, whether they should pay to the FIRS or should they just assume that there is no VAT laws given the contradicting pronouncements of the courts so, he advocated for the expedited hearing and resolution of the pending appeal as tax payers still have up till on the 21st of the month during which they have to file their tax returns , so that there could be clarity and certainty regarding which agency of the government either at the state or federal level is entitled to receive the VAT.
Which state Will suffer ?
Olugbenro when asked if any state would suffer from the ongoing conflict said that some states will indeed face challenges depending on how they manage the collection system as the current system of collecting taxes centrally by the FIRS is a product of many years of practice and reviews in trying to perfect the the system so it’s never going to be easy for any state to set up a collection mechanisms that will match what FIRS already have in place again, raising the question of ease of tax administration by states as they’re unable to effectively administer the personal income tax that’s already within their domains for many years.
Another aspect to be considered is when eventually the mechanism for collection of tax is perfected by the states, the quantum or volume of economic activities taking place within the states will determine how much the state will be entitled to collect therefore, he urges states to be cautious about the whole matter as states may no longer be entitled to share in the federation tax revenue, if they take over tax administration in their states and concluded by asking the tax payers to be wary of the current development in terms of the complexity and in complying with VAT laws that spanned the 36 states of the federation including the FCT, particularly for businesses that have spread across the country adding that all these complicates the question of ease of administration.
Should VAT be in the Exclusive List ?
As to the questions of in which of the legislative lists should the of issue of VAT be covered, Mr Emmanuel Anyaegbulam, a lawyer and executive director, African Center for constitutional studies , said the tax law currently in question emanated from the military era which comes with the problems of law reform and reviews, which is supposed to be carried out every 10 years but that the last review which took place was 24 years ago and it was in 2004, and that the failures to conduct this periodic reveiws is what has now thrown up this present arguments.
He also spoke of the issue of public revenue within our constitution, which is captured from section 162 of the Constitution.
He said that in a federation, states are not unform and added that the Nigerian federalism is only in name but unitary in practice which has brought the issue of where the power of taxation lies.
He used USA as example where he said that poor states like Arkansas and other states considered to be poor states are limited, in terms of what they can and cannot do, by their state’s resources and economic output and that governors of these states do not earned same salaries as the relatively rich states in US.
He finished his submissions by urging for the critical appraisal of not only the Constitution but also of our laws as regards fiscal federation because many states do not even have the capacity to collect these tax revenues and another issue at stake is whether taxation is within the exclusive list but he said it is not per se neither, was it high lighted but you would see trade within the exclusive list.
all these experts perspectives being brought to bear on this issue, it will be very interesting to see in the coming days or weeks how all these will turn out in terms of the relationship between the state and the federal government with regards to the tax laws
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