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Manufacturers deplore stalemate as FIRS, Rivers insist on VAT collection

By Femi Adekoya (Business Editor), Kehinde Olatunji (Lagos) and Ann Godwin (Port Harcourt)
09 September 2021   |   4:31 am
The battle for Value Added Tax (VAT) between the Federal Inland Revenue Service (FIRS) and states got fiercer yesterday as Rivers State, spearheading the new wave of fiscal federalism with its August 10 court judgment, commenced full implementation of the state’s VAT law...

Wike. Photo/https://www.facebook/GovernorNyesomEzenwoWikeCON/

• We have backing of VAT Act, says FIRS
• Rivers meets business community, begins implementation
• Bickering, as Lagos proposes six per cent VAT, 75% for state, councils 25%
• Manufacturers worry about impasse despite N44.9b remittance in H1

The battle for Value Added Tax (VAT) between the Federal Inland Revenue Service (FIRS) and states got fiercer yesterday as Rivers State, spearheading the new wave of fiscal federalism with its August 10 court judgment, commenced full implementation of the state’s VAT law, while the federal tax agency in a desperate bid to retain the collection of VAT, has written the National Assembly, seeking the inclusion of VAT collection in the exclusive legislative list.

In a letter signed by the Executive Chairman of the FIRS, Muhammad Nami, and dated July 1, 2021, which was addressed to the Chairman of the Constitution Review, who is also the Deputy Speaker of the House of Representatives, Idris Wase, FIRS requested the federal lawmakers to approve for it the establishment of a Federal Revenue Court of Nigeria.

The letter with references number FIRS/EC/CWREP/0416/21/037, was titled, ‘Request for sponsorship of a bill for the establishment of the proposed Federal Revenue Court of Nigeria and the insertion of Value Added Tax under item 58 of the exclusive legislative list’.

FIRS specifically pleaded with the National Assembly to vest, exclusively on it, all adjudication of tax disputes, including federal tax laws, companies income tax, petroleum tax, income tax, capital gain tax, stamp duty, VAT, taxes, levies and other laws, regulations, proclamations, government notices and rules. The VAT rate was raised from five to 7.5 per cent in 2020.

FIRS Group Lead, Special Tax Operations Group, Mr. Matthew Gbonjubola and his Digital and Innovation counterpart, Mrs. Chiaka Ben-Obi, giving insight into the position of the organisation in Abuja yesterday, said: “VAT came into being by virtue of the VAT Decree of 1993, which was a federal law. It came into effect in 1994, on January 1. According to the law establishing VAT, the FIRS is the legitimate authority to administer it.

“The VAT law abrogated all sales taxes at the time it was enacted and upon the advent of the current democratic dispensation, the VAT decree became an Act of the National Assembly and it has remained so until now.”

Gbonjubola explained that the input/output mechanism of VAT and the fact that the bulk of VAT revenue comes from imports, as well as, Federal Government’s Ministries, Departments and Agencies’ (MDAs) contractors, makes it impossible for states to administer the tax. According to him, no state government controls any port and that as such, it would be very difficult, if not impossible for sub-nationals to collect VAT.

“There are three very important avenues of VAT collection. One is VAT on imported items, which is collected at the ports of entry. As at today, there is no state government that controls any port in Nigeria, which is why it is a lot easier for the FIRS to administer VAT.

“The second source of VAT is the one we pay when we go to shops and buy things. The third, which contributes a substantial volume of VAT is the one paid by MDAs when contracts are awarded – either contracts for construction supplies or services.

“That is why if you look at VAT today, after Lagos, because we have many ports in Lagos, FCT comes second because the majority of contract awards are from the federal ministries and VAT collected in respect of those ministries are from the Federal Government. It is extremely difficult, if not impossible, to operate VAT at sub-national level.  And that is why there is no country in the world that does that.”

WITHOUT hesitation, the Rivers State government, yesterday, said it is going ahead with full implementation of the state’s VAT.

Governor Nyesom Wike made this known during an interactive session with representatives of corporate organisations to clarify the position of the law to the business community in the state.

According to the governor, the clarifications on the position of law would enable the organisations not to fall prey to the antics that could be deployed by FIRS officials, “who think they could use force to collect what does not belong to them.”

He said: “When we challenged the Federal Government through the office of the Attorney-General and FIRS in court, do you know what they did? They wrote this letter dated 1st of July 2021. Remember, it was in 2020 that we filed this action against them. But see how corrupt this country is.

“Corruption is not only about kickbacks, it is also about doing something illegally. We were in court in 2020. Then on July 1st, 2021, the chairman of FIRS wrote to the National Assembly through the office of the Deputy Speaker of the House of Representatives.

“He was asking them to amend the Constitution and insert VAT under item 58 of the exclusive legislative list, when we were already challenging that it is not their responsibility to collect VAT. They knew that what they were doing was not the right thing.”

Governor Wike stated that his responsibility in office included making sure that Rivers people are not denied their entitlements.

He described as unfortunate that FIRS has resorted to writing threat letters to intimidate corporate organisation to pay to them even after they have lost their appeal that sought a stay of execution of the declarative ruling on VAT collection in the state.

Governor Wike urged the business community to be ready to pay VAT for the month of September 2021 and subsequent months to the Rivers State Internal Revenue Service. According to him, he has already assented to the Rivers State VAT law passed by the House of Assembly.

The governor warned corporate organisations not to feign ignorance of the state VAT law. He declared that the government would not hesitate to seal up the premises of any company that defaults.

Governor Wike described the disparity in VAT proceeds and what is given to the states as injustice that weakens the performance potential of the states.

“Let me tell you the injustice in this country. In the month of June 2021, which we shared in July, VAT collected in Rivers State was N15.1 billion. What they gave us was N4.7 billion. See the gross injustice and these money include contracts awarded by the Rivers State government.

“This is not an issue of party, it is the issue of infraction of the Constitution, issues of illegality. Look at Lagos, it is not the same party with me. In the month of June 2021, the VAT collected in Lagos was N46.4 billion but see what Lagos got, N9.3 billion. Have you seen the injustice in the country? VAT collected in Kano was N2. 8 billion and they gave them N2. 8billion. Is there any justice in this country?”

Governor Wike described as morally offensive a situation where Rivers State government will award contracts for state roads worth N200 billion and the FIRS will illegally receive 7.5 per cent of the amount as VAT to be distributed among the states.

IN Lagos State, the House of Assembly has proposed a six per cent VAT on goods and services in which 75 per cent would be accrued to the state government and 25 per cent to local councils. This was disclosed, yesterday, during a public hearing on the bill for a law to impose and charge VAT on goods and services and for related matters.

In the same vein, the Assembly also held a public hearing on a bill for a law to prohibit open cattle grazing in Lagos State, the trespass of cattle on land and for other connected purposes.

The bill on VAT stated that where a taxable person fails to render returns to the service, an offence is committed and is liable on conviction to a maximum fine of 500,000 for every month that failure continues.

It added that an officer of the Service or any body who aids or abets the commission of any offence under the law commits an offence and is liable on conviction to imprisonment for a term of five years or a fine of 2,000,000.

The bill indicated that the value of imported taxable goods shall be the amount, which is equal to the price of the imported goods and includes all taxes, duties and other charges levied outside or for importation into Nigeria, other than the tax imposed by the law. It also covers the cost of parking, transportation, insurance and commission up to the port or place of importation.

The bill also noted that a taxable person shall render to the service on or before the 21st day of the succeeding month, a return of taxable goods and services purchased or supplied by him during the preceding month in the manner specified by the Service.

However, stakeholders present at the public hearing have sought for a redress and adjustment to the bill due to what they described as infractions and irregularities. They also urged the state government to carry out orientation and education for the people so as not to render revenues to the FIRS.

Specifically, the Executive Director of Consumer Rights Advocacy Center, Comrade Adeola Samuel, alleged that the state government has taken over all the constitutional powers of the local councils.

He said: “Every area of accrued revenue has been taken over. If this VAT is collected and you are giving 25 per cent to the local councils, where the government resides, it is bad. The grassroots is where the government resides. Although, even the local government chairmen cannot be trusted with the revenue, some of us are there to monitor their activities to ensure that they do what is expected of them. This money is generated from their base and they should take the lion share.”

Lagos tax justice and development expert, Mike Alade, proposed a reduction of the VAT rate, and also asked the state to ensure that there is no case of double taxation in the transition period.

“Transition period might be a little squishy. We don’t want a situation whereby FIRS will be disturbing the taxpayers and LIRS will also be disturbing them. So, the issue of the tax period, the taxpayers and populace should be well educated. There should be a lot of orientation and education for the public to know the agency that is in the position by law to take this bill.”

On its part, Conference 57, an umbrella body for all Chairmen of 57 Local Governments and Local Council Development Areas, LCDAs, urged the state government to raise the bar of distribution revenue for the local government to 50 per cent as against the proposed 25 per cent.

HOWEVER, Gombe State’s Commissioner for Finance and Economic Development, Muhammad Magaji, has appealed to the Rivers and Lagos governments to reconsider their stance on stopping VAT remission to the common federation purse for redistribution to the 36 states and Abuja.

Speaking at the opening of the Technical Workshop on Development of the Medium-Term Sector Strategy (MTSS) for the state, Magaji pleaded with Southern governments to be their “brothers’ keepers” in sharing the VAT proceeds.

According to Magaji, only three of the 36 states could survive without support from the Federal Government, and for states to control all its home resources would trip off a dangerous trajectory that would endanger the federation.

Magaji said: “The VAT issue will have adverse effects not only on Gombe but almost all the states of the federation. I was part of the discussion a few weeks ago by all commissioners of finance across the country.

“The realisation was that only Lagos, Rivers and probably Delta states would be able to pull through without this VAT being administered centrally, and it is our appeal that we all put sentiments behind and work towards a federation that is one, by being our brothers keepers and ensuring that what is pulled together at the centre is distributed to be able to balance resources across the country.

“Don’t forget that the oil producing states collect 13 per cent derivation, so, if you say every state will take whatever resources it has, that means we are starting a very dangerous trajectory that will not augur well for the federation called Nigeria.”

MEANWHILE, local producers have expressed worries that the recent controversy over the control of VAT between the federal and state governments, will take a huge toll on their businesses.

With a contribution of N44.9 billion in the first half of 2021, according to National Bureau of Statistics (NBS), operators noted that the manufacturing sector is going to be hardest hit by this looming impasse.

The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, noted that the seemingly conflicting court judgments and strong statements emanating from the two tiers of government are unhealthy for business.

According to MAN, the impasse is unnecessary considering that the economy is showing signs of full recovery and reasonable growth.

“Manufacturers, like many other business operators in Nigeria are deeply concerned about what becomes of their fate come September 20 when businesses are expected to file value-added tax (VAT) claims and beyond. The contentions are worrisome and potentially inimical to the smooth operations of our businesses.

“On the one hand, FIRS is insisting on continuing to collect VAT, while Rivers State is ordering immediate and complete collection of the same tax. Lagos State is preparing the grounds to go the way of Rivers. Who knows, other states may be warming up to join the fray,” he added.

He noted that operators expect the Federal and State governments to stop the grandstanding and find a mutually acceptable way forward.

“The business community can ill afford the anxiety and confusion that this controversy is generating. We should not be made to suffer while the two tiers of government fight over who should control VAT.

“Also, we should not be put in a situation where we have to pay both governments the same tax. This will amount to overkill for the struggling manufacturing sector, and I dare say, a recovering economy. This is potentially dangerous, not only to the profitability of the manufacturing sector; it is ruinous to the disposable income of the average Nigerian consumer,” MAN warned.