The Federal Government, the Federal Capital Territory and about 34 states may face revenue drop to the tune of over N3.9tn if the governments of Rivers and Lagos states begin the collection of the Value Added Tax in their respective states.
The Court of Appeal in Abuja on Friday ordered parties in the dispute over the administration of the Value Added Tax (VAT) to stay the action pending the resolution of all legal issues in contention.
A three-member panel of the court-ordered parties to maintain status quo ante bellum and refrain from acts capable of jeopardizing the res (subject of the dispute).
The court agreed with the lawyer to the Federal Inland Revenue Service (FIRS), Mahmud Magaji (SAN) that, having submitted to its (the court’s) jurisdiction, it was incumbent on parties to preserve the res.
But In the last five years alone, the Federal Inland Revenue Service, a Federal Government agency that hitherto collected VAT on behalf of all the states and the Federal Capital Territory, realised N5.6tn. Out of this sum, Lagos and Rivers’s states contributed about N3.9tn.
Following the moves by the two states to start collecting their VAT independently, having enacted laws to that effect, the aggregate sum realised from VAT, which was shared by the three tiers of government, may suffer a decline.
Justice Stephen Pam of the Federal High Court in Port Harcourt, the Rivers State capital, had on August 10, 2021, ruled that the plaintiff, Rivers State, and not the FIRS, should be collecting VAT and Personal Income Tax in the state.
The court on Monday also dismissed the FIRS’s application for stay of execution, noting that since the state had enacted a law to that effect, courts are bound to obey laws. He said the law remained valid until set aside by a court of competent jurisdiction.
Meanwhile, the Court of Appeal sitting in Abuja on Friday ordered Rivers and Lagos states to stay action on the collection of VAT pending the determination of the appeal for a stay of execution filed before it by the FIRS.
Justice Haruna Tsammani, who delivered the lead ruling of the three-man panel of the appellate court, gave the order when the matter came up before the court.
He ordered that “the status quo ante Bellum” be preserved.
“The parties shall refrain from taking any step regarding the judgment pending the hearing and determination of the application for stay of execution,” he said.
The FIRS in an appeal marked CA/PH/282/2021 prayed the appellate court to set aside the ruling of the Federal High Court in Port Harcourt, which granted River State power to collect VAT and PIT. The tax body also wrote to the National Assembly, seeking the inclusion of VAT in the exclusive legislative list. It also asked the federal lawmakers to approve the establishment of the Federal Revenue Court of Nigeria.
The ongoing dispute between the two states and the FIRS, however, assumed a new dimension on Friday as the Lagos State Government applied to the Court of Appeal to be joined as a co-respondent in the appeal filed by the FIRS.
The matter slated for the day’s activity in court on Friday was the application filed by FIRS seeking a stay of execution of the trial court’s judgment.
However, the Attorney General of Lagos State, Moyosore Onigbanjo (SAN), informed the court of their application for the Lagos State Government to be joined as a party in the appeal. He argued that the application for joinder should be taken first before FIRS’ application for stay of execution, adding that it was in the interest of justice for Lagos State to be joined in the suit.
But the counsel for the FIRS, Mahmoud Magaji (SAN), argued that their application for stay of execution should take precedence over the application for joinder. Magaji, relying on the case of Pam V. Mohammed, argued that the court could restrict itself to the business of the day.
The counsel for Rivers State, Emmanuel Ukala (SAN), spoke in support of Lagos State. He also quoted late MKO Abiola saying that you cannot shave a man’s head in his absence and that the Lagos State Government ought to be joined in the appeal.
After listening to the submissions from all the parties, the court stood down the matter for the ruling.
Justice Tsammani noted that it would be in the best interest of justice for the motion for joinder to be heard first. He stated that it was not necessary that the first application to be filed must be the one to be heard first.
Magaji, however, informed the court that he had just been notified by the FIRS office in Port Harcourt that they received the application for joinder. He prayed the court to allow him to prepare and file his response to it. He also applied for the status quo to be maintained.
Consequently, the court adjourned the matter to Thursday, September 16, to enable the parties to file their response to the application for joinder filed by the Lagos State Government.
Also present in court were the Attorney General of Rivers State, Zacchaeus Adangor; the Rivers State Commissioner for Justice, Isaac Kamalu and the Deputy Director and State Coordinator for the Rivers, Edo, and Delta Zone of FIRS, Hamisu Ibrahim.
The Acting Director, Civil Appeals, Federal Ministry of Justice, Tijjani Gazali (SAN), represented the Attorney General of the Federation, who was joined as the second respondent in the appeal.
So far, the FIRS generated N5.6tn VAT in five years. According to the data available on the FIRS website, Nigeria earned a total VAT revenue of N5,629,739,500,000 between 2016 and 2020.
In 2020, Nigeria earned a total of N1,531,170,900,00, comprising Import VAT collected by the Nigeria Customs Service, N347,724,800,000, and Non-import VAT of N1,183,446,100,000.
In 2019, the total VAT collected was N1,189,981,100,000, comprising N244,517,200,000 Import VAT and N945,463,900,000 Non-import VAT.
The total VAT in 2018 was given as N1,108,040,000,000, comprising N249,021,800,000 Import VAT and N859,018,200,000 Non-import VAT.
For 2017, total VAT income was N972,348,400,000, comprising N202,000,500,000 Import VAT and N770,347,900,000 Non-import VAT.
In 2016, however, N828,199,100,000 total VAT was realised, out of which N177,855,200,000 was Import VAT and the remaining N650,343,900,000 was Non-import VAT.
Of the total N5,629,739,500,000 VAT collected by FIRS between 2016 and 2020, Lagos and Rivers, said to contribute over 70 per cent of the VAT collectables in the country, are estimated to have been responsible for N3,940,817,650,000
Given the percentage generated by the two states, there are fears that the revenue accruing to the VAT common purse might drop significantly.
Meanwhile, prior to the ruling, the money collected as VAT was shared among the three tiers of government, with the Federal Government taking 15 per cent, the states 50 per cent and local governments 35 per cent, while the FIRS deducted four per cent as its cost of collection.
Lagos State Governor, Babajide Sanwo-Olu, on Friday signed into law the state VAT Bill as passed by the House of Assembly.
A statement by the Commissioner for Information & Strategy, Gbenga Omotoso, said the governor signed the “bill for a law to impose and charge VAT on certain goods and services” at about 11.45 am after returning from an official trip to Abuja. “By this act, the bill has now become a law,” he added.
Meanwhile, sources within the Lagos State Inland Revenue Service told one of our correspondents that the tax agency was already putting together a VAT unit as the governor had signed the bill into law.
A senior employee at the LIRS said the tax agency would need to train its staff on VAT collection and set up platforms for collection.
The source added, “The irony is that in the last couple of months, many of our staff left for the FIRS because the FIRS pays better. With this new VAT revolution, we may even earn more than the FIRS. I was informed that a VAT unit will be set up and a structure will be put in place for collection.”
The latest action of the Lagos State Government is a sequel to the same move by Governor Nyesom Wike of Rivers State, who on August 20, 2021, signed the Valued Added Tax Law No. 4 of 2021 and some other bills into law.
While signing the 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.”
In a related development, the governor has inaugurated a four-man body of tax appeal commission. He charged the commission to enshrine a new culture in which taxable persons and entities comply with the relevant tax laws in the state without hesitation.
Wike gave the charge shortly after the swearing-in of the Rivers State Body of Tax Appeal Commissioners at the Government House in Port Harcourt on Friday.
This was contained in a statement by the governor’s media aide, Kelvin Ebiri, titled ‘Governor Wike inaugurates four-man Rivers tax appeal commission.’
The commissioners sworn in by the governor included Justice Bennett Eke Ugbari (retd.), who is to serve as the chairman; Edwin Krukrubo, Owhonda Ihekwoaba Nobel and Mrs Gift Sovins.
The governor explained that they should focus on dealing with complaints arising from those who did not want to pay taxes, while also prevailing on those who believed that the tax body was doing what it was not supposed to do.
He said, “It is a very serious assignment at this period as regards what is going on. So, I believe that you have to take this assignment as a call of duty from your state. No country can survive without taxes. So, you will do all you can to support the government and the citizens to do what they are supposed to do.
“I have confidence in you; the chairman, that you will be able to lead the members of the commission to do the right thing.”
The chairman, Ugbari, said Rivers, like other federating states, needed to generate sufficient internal revenues to augment the statutory allocations it received from the Federal Government.
He added, “In carrying out our assignment, the commission shall be guided by the principle of fair hearing, justice and equity. We shall ensure that there is a proper assessment of taxes and that every taxpayer in Rivers State pays adequate tax as required by the relevant tax laws.”
Benue State Governor, Samuel Ortom, on Friday commended his counterparts in Rivers and Lagos states for following the rule of law, notwithstanding that their new laws would affect his state in terms of revenue.
“As long as it conforms with the constitution of the Federal Republic of Nigeria, whether it affects me negatively or not, I accept it,” he told journalists. “I will commend my colleagues in Rivers and Lagos states for what they have done, it shows that they are law-abiding leaders.
“As a proponent of the rule of law, wherever you have issues, you go to court. Parties should accept the judgment. The FIRS has also gone to court and if the Appeal (Court) says no, let it be and finally if the Supreme Court says otherwise, we will accept it.”
The governor said he had informed the state’s Attorney-General to look into the law, adding that the Peoples Democratic Party was repositioning itself to win the 2023 general elections.
But, the Kogi State Government, headed by Governor Yahaya Bello, said it would not involve itself in the pursuit by Lagos and Rivers states to collect VAT.
The state Commissioner for Information, Kingsley Fanwo, in an interview on Arise TV on Friday, said, “We are not created equally and God that created us did not give us equal potential, and we have to support one another.”
“This call shows that some of our leaders are insensitive, self-centred and trying to make policies that will further divide the country.
“Kogi is bordered by about 10 states and a gateway to the North and South. You know that thousands of vehicles transverse the state on a daily basis. It’s the mineral capital of Nigeria. When you look at our advantages, we should even be at the forefront of fighting for VAT (collection) to be completely retained in the state.
“The position of Governor Yahaya Bello on this is very clear: we will not jump on that bandwagon to call for the retention of VAT completely in the state. We are not created equally, and God who created us did not give us equal potential, and we have to support one another.”