Wike and the VAT Controversy

Edifying Elucidations BY  Okey Ikechukwu
okey.ikechukwu@thisdaylive.com

Governor Nyesom Wike of Rivers State was the first to open fire. He took aim, took his matter to the appropriate legal quarters and then let it all out with characteristic, even if somewhat deliberately provocative, ebullience. He hit the mark and announced his victory. Cheers came from sections of the country, particularly the South. He then rubbed it all in by bringing up, and emphasising, the matter of who should benefit from the earnings on alcohol. That singular point immediately stirred an otherwise restive hive of controversy that was just waiting to be stirred.

Yes, he made a valid point, based on law and the constitution. Yes, he was responsible and diligent enough to first follow the law, being a lawyer himself, to attain his objective of trying to prevent the federal government from collecting Value Added Tax from Rivers State. Yes, the historic judgment he got has shown that the judiciary is still capable of being guided by its own precepts on the rules for court proceedings.
But Wike also went a little beyond the advisable remit. Matters of resource sharing and management are touchy, to the point of being outrightly volatile and provocative. With the aspects of his utterances that brought up who or who should not benefit from tax on alcohol, an otherwise valid point about VAT collection and sharing became befuddled by ethno-religious sentiments; such that many felt compelled to join a conversation that they would have ordinarily seen as none of their business. That is the tragedy here. And a tragedy that has implications for cohesion, national security and the widening of ethno-religious and other divides.

When the Lagos State Government recently enacted the equivalent of the VAT law that Rivers State enacted, the news seeped out into the public domain without fanfare. The victory so loudly celebrated by Rivers State is also the same victory secured by Lagos State without setting up a single canopy. It was just taken as a matter of course. The state did not try to make any extra points about thisconsumption tax, or flat-tax, levied on certain items on sale. The state also did not try to lecture anyone on how this is similar in some respects to sales tax and why, unlike a sales tax, the full amount owed to the government is not paid by the consumer at the point of sale.

Lagos did not try to offer any clarifications regarding the fact that VAT administration ensures that portions of the tax amount are paid by different parties to a transaction. Thus, the signing into law of “the bill for a law to impose and charge Value Added Tax (VAT) on certain goods and services” (the Lagos VAT Law) on 10 September 2021, by Mr. Babajide Sanwo-Olu of Lagos State was nothing other than the signing of a bill duly considered and approved by the representatives of the people. He has the same resolve, courage and will as Wike. But his methods were different.

Being the second State of the Nigerian federation to pass such a law, it may be said that the winds on the sales of Rivers State were bound to enjoy greater visibility and fanfare than the originating initiative of Rivers State. The “victory” of the two states in their respective legislations on VAT followed a ruling by Justice Stephen Pam of the Federal High Court sitting in Rivers State. The learned justice had, in his ruling, restrained the Federal Inland Revenue Service (FIRS) from collecting VAT and Personal Income Tax (PIT) in the State. Forthwith, the ruling also debarred the Federal Government from same; by the simple fact of restraining its agency, in this case the FRIS, from doing so.

For the record, and deriving from the foregoing, let us note the following key highlights and provisions of the Lagos VAT Law; which provisions are also present in varying forms in similar recently-enacted laws from other states. It recognizes the Lagos State Inland Revenue Service (LIRS) as the administrator of the VAT law. By this provision, LIRS is made responsible for the collection of VAT, pursuant to this law. The agency is also charged with responsibility for accounting for such revenues, as collected. It has responsibility for the registration obligation on non-residents who carry on business within the State. It even provides that the rate at which VAT will be charged will henceforth be 6% on the value of goods and services in the State. In order not to leave out any details, the Lagos VAT law spells out the apportionment of revenue accruing from VAT between the state government at the rate of 75% to the State Government and 25% to the local governments, respectively.

Now that the Court of Appeal has waded into the matter, asking all parties to the VAT controversy, in this case Rivers State and the FIRS, to maintain the status qua ante, a disconcerting stalemate hangs in the air. One of the immediate problems arising from these new developments on VAT across various states is that some business owners now see themselves as walking a minefield of confusion. To whom should they pay VAT? Even though the FIRS failed in its bid to secure a stay of execution of the Federal High Court, it remains undeterred. The agency has asked the business community to ignore the ongoing controversy and keep paying their taxes to it, until the Court of Appeal, or the Supreme Court, takes a final position on the matter.

The FIRS appears to justify its position on the belief, assumption and claim that its collection of VAT is backed by the VAT Act, Cap V1, LFN 2004. By observing that non-remittance of VAT to it is the equivalent of breaching this specific provision, the FIRS is saying that it is its business to collect VAT in all states of the Federation, including Rivers State. But since Rivers and Lagos now have laws indicating unambiguously that VAT should be paid to their assigned, respective revenue authorities, the matter is not getting any less confounding and messier. The predicament of business owners is best imagined in a scenario like this.

Add to the foregoing the growing consensus of the Southern governors on all the brewing and emerging issues. Rising from a meeting in Enugu on 16th of September, they took sides with those insisting that state governments should be in charge of VAT collection in their domains. Further still, the implication is a collector-keeper and sole beneficiary logic. And with these governors apparently speaking with one voice, under the aegis of Southern Governors’ Forum, matters may well be taking on stronger geo-ethnic colorations that may become increasingly difficult to manage as the days and weeks go by.

In fact, it would seem that the Enugu meeting quickly metamorphosed into a retreat to craft a Southern Agenda, going forward. Not limiting themselves to VAT, the southern governors went ahead to take a strong position on the 2023 Presidency. They insisted that the next president of the federation must come from the Southern part of the country. Fiscal federalism was on the cards, among other things. in point of fact, it was a declaration of political battle lines.

But, going back to Wike and the VAT controversy, the governor took time off the other day to tell his critics off. He stood by his decision to maintain his contestation of the right of the FIRS, as an agent of the federal government, to collect VAT. In his belief that Nigeria must encourage federating states to harness their resources and generate revenues, including VAT, Wike argues, correctly, that this will aid sustainable development. As he was receiving a letter of nomination as Man of the Year from the Managing Director and Editor-in-Chief of the Sun Newspapers in Government House in Port Harcourt, Wike was reported to have said: “Some people say, be your brother’s keeper; I have no problem in being my brother’s keeper but why not come out and say, let us tell ourselves the simple truth?”

His call for frank conversation is good. His underlying good intentions are perhaps being misread by what is considered a combative posture in his manner of proceeding. Wike has raised the question: “As it is provided in the law, who is the person responsible to collect the VAT?” He has called for an initial admission of the provisions, saying: “When you agree that it is the state, then we can sit down to look at the different problems of states.” This latter observation of Wike makes sense, in my view. This more urbane stance should be Wike’s more visible position, rather than the perception that he is holding an absolute position and providing no grounds for dialogue.

In his renewed disagreement with his colleagues who also overstepped the bounds by seeming to threaten that the judgement of the court that allowed states to collect VAT within their jurisdiction would not stand, Wike should be seen to be urging them to be realistic, rather than take them on at the same frequency. The consequence will be an inability to find common grounds on the VAT controversy.

Wike can make the point about his concerns regarding the position of the federal government, but without appearing to be engaging in name-calling. His description of the absence of Rivers from the list of states that will benefit from projects, for which the federal government was seeking fresh foreign loans, as an act of discrimination will only widen existing divides. Hear him: “Look at the money that federal government has gone to borrow from the World Bank, of all the projects in all the states, the federal government did not include Rivers State.” Considering that this is neither new, nor peculiar to his state, Wike should not allow this particular point to attract more attention than the substantive issue of concern on VAT and national consensus on revenue receipts and distribution.