THE RUMBLINGS OVER VAT JUDGEMENT

Any tax regime that is served arbitrarily cannot endure

The recent judgement of the Federal High Court (FHC) in Port Harcourt on the rightful authorities to collect Value Added Tax (VAT) and Personal Income Tax (PIT) has continued to raise fundamental questions in our polity. The court had on 8th August this year held that only the Rivers State government and not the Federal Inland Revenue Services (FIRS) has the right to collect VAT in the state. The judgement prompted the Lagos State House of Assembly to pass an accelerated bill on VAT collection. According to the House Speaker, Mudashiru Obasa, the VAT law would lead to an “increase in revenue and infrastructural development,” for Lagos State, evidently the biggest beneficiary of the judgement. “This is in line with fiscal federalism that we have been talking about,” he said.

However, shortly after Governor Babajide Sanwo-Olu signed the bill into law in Lagos on Friday, the Appeal Court sitting in Abuja ordered all parties to maintain the status quo and refrain from taking action that would give effect to the VAT judgement. A three-man panel led by Justice Haruna Tsammani gave the order while ruling on an appeal filed by the FIRS.
Whatever may be their misgivings, we enjoin both Lagos and Rivers States to abide by the appeal court ruling and not resort to self-help. But the most significant message from the VAT judgement is that we can use the instrumentality of the law to right many of the accumulated wrongs in our federal structure. The letter to the National Assembly by FIRS Executive Chairman, Muhammad Nami, seeking exclusive powers over adjudication of all tax disputes in the country smacks of desperation. Some contents of the letter also betray the fact that the federal authority has been exercising powers it does not have.

As we stated in a recent editorial, to strengthen our union, critical stakeholders must begin to seek judicial interpretations of grey areas of the law and our courts should also be bold to intervene on the side of reason and common sense. While the 1999 constitution (as amended) defines the powers of each tier of government, the federal government has continued to usurp powers that ordinarily belong to states and sometimes even local governments. And with that, we now run a unitary government that does not serve the interest of the populace.

We understand that the VAT judgement comes with profound implications in a milieu where the ‘sharing spirit’ have for decades defined governance and resource allocation. Research firm, SBM Intelligence, has stated in its analysis that to implement the judgement, “a few states like Delta, Kaduna, Kano, Katsina, Oyo and Rivers may experience minimal impact, while 30 states which account for less than a fifth of present VAT collection will take significant revenue hits.” There are also implications for Small and Medium Enterprises (SMEs) that may have to contend with multiple tax authorities for VAT purposes. But these considerations are not enough to advocate a continuation of the status quo that has become a problem for the peace and progress of the country.

This newspaper has always argued that it is patently wrong that the federal government should impose VAT on the same goods and services upon which state authorities still charge ‘state tax’. We also believe, as it is in other jurisdictions, that tax on consumption which VAT represents, cannot be collected by the federal government. Many also query the rationale for sharing the proceeds of VAT generated from the sales of alcohol with states that have not only placed a ban on its consumption but willfully destroy the products.

While we deplore recourse to ethnic baiting by those who define every issue in north-south rhetoric and may be muddling the waters on the VAT judgement, this is the time for the FIRS to put on its thinking cap on how to address declining revenues beyond fighting for every crumb with the states. The lesson the authorities in Abuja ought to learn from the reactions to the VAT judgement is that any tax regime that does not meet the twin requirements of efficiency and equity in a diverse nation such as Nigeria cannot endure.