The current war on the implementation of the Value Added Tax in Nigeria obviously is the prelude to Fiscal Federalism in the country. This principle has been at the root of calls for restructuring Nigeria’s political arrangement in such a way that allows regions or the federating units to have control over resources domiciled in the areas.
While the issue of entrenching a workable federal structure has been scuttled at every juncture on the journey, the present approach is sure to get reasonable results. This is so because it is bound to bring all interested parties to a roundtable since money is now involved.
It’s interesting that the crusade is being spearheaded by the two states – Lagos and Rivers – that between them contribute over 70 percent of the total VAT revenue that is then pooled and shared among the three tiers of government: Federal 15%; State, 50%, and local government 35%.
What started in Rivers State quickly spread to Lagos, as the two states said their resources would no longer be used to sponsor other states more since the distribution of the pooled VAT proceeds is based on a weird formula.
For instance, Nyesom Wike, the fire-spitting governor of Rivers, said that while the state generated N15bn of VAT revenue in June 2021 but got N4.7bn after the sharing, “Kano produced N2.8bn in June but Kano also got N2.8bn. Sometimes you don’t want to believe these things exist”.
Wike added that in the same month, FIRS collected N46.4bn from Lagos State in VAT, but the Federal Government gave Lagos N9.3bn. “Sometimes, you don’t want to believe these things exist,” he added.
Obviously, the question then arises: what is the sharing formula?
The Speaker of Lagos State House of Assembly, Mudashiru Obasa, speaking at a public hearing by the House on VAT on Wednesday gave a picture of the reason for the angst from the two states.
“Lagos State for instance generates an excess of N500billion in VAT form, if we go by generation trend, in tandem with the N2,4trillion forecasted by the FIRS, Lagos State will be contributing 55percent of the total VAT collectibles in the entire country. But what do we get in return? Some paltry sum. This injustice and inequity are part of the premises that some of the extant agitations are founded,” he said.
The Lagos and Rivers States argue that they want to use their resources to develop their places. In Lagos, the VAT Act, signed on Friday by governor Babajide Sanwo-Olu, provides for a sharing ratio of 75% for the State government and 25 for the Local Government Areas. The VAT rate is 6%, lower than the 7.5% charged by the Federal Government.
In Rivers, the rate is also 7.5%. The State government will get 70% while the local governments where the transactions take place will receive 30% of the proceeds.
“We will not look back but seal up the premises of such companies,” the governor warned, stressing that the state does not need the Nigeria Police Force to enforce the collection of VAT but would use the state-created security outfit backed by the law,” governor Wike has threatened.
A Federal High Court in Port Harcourt recently ruled in a suit brought about by the Rivers State government the Rivers State Government had the powers to collect VAT within its territory.
This was the tonic that Lagos latched on. According to Speaker Obasa, “The judiciary through the Federal High Court of Port Harcourt Division came to the rescue of the nation and assuaged the fears of teeming Nigerians in her judgment in the case of Attorney General of Rivers State v. FIRS (2020) when Justice Pam upheld the rights of Rivers State and by extension, all other states of the federation to collect VAT on the businesses conducted within their territories. It is in this light that Lagos State seeks to practicalise her rights that is established in the Rivers State’s Judgement by proposing this bill for a law to enable the state to collect VAT thereby creating a complete tax regime.
But while the states are finalizing arrangements for the new VAT regimes in, the Court of Appeal ordered both to maintain status quo on the collection of VAT, pending the determination of an appeal that was lodged before it by the FIRS.
The order came on the same day that governor Sanwo-Olu signed the law. But the state government has vowed to go ahead to with the implementation, saying the Court of Appeal order “is not binding on it”. This was disclosed by the Commissioner for Information and Strategy, Mr. Gbenga Omotoso, as the government reacted to the order.
“I’m not a lawyer though, but by my understanding from my colleague, the state had only sought to be joined in the Rivers’ state suit and up to this moment Lagos has not been joined in the suit, so how does the order concern Lagos when it has not been joined in the suit,” the commissioner said.
The coming days, weeks and perhaps, months will determine what happens next on this matter.