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VAT’s peculiar mess: Another writing on the wall

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It is yet another time to appeal to the big people in Abuja, our Abuja who are worried but clueless about how to handle the ‘peculiar mess’ that a public finance nemesis called Value Added Tax (VAT) is beginning to garner in Abuja to ‘calm down’ in public interest. I would like to quickly add that the stakeholders in this emerging warfare over who should collect VAT should not regard the public policy’s sensitive issue triggered by the Rivers State Government as personal. It is a public interest issue. It should not be regarded as another war between the North and the South. The incipient battle for the soul of that weapon called VAT should not be seen as yet another political battle between the ruling APC and the main opposition party, PDP. Nor should the epic fireworks from VAT be seen by our lawyers as another opportunity to make money from both parties without considering the implications for the country at this time. I would like us to manage the issue as another writing on the wall for our president to read and learn again.

Yes, another writing to our commander-in-chief that his complacency and contempt for serious calls for comprehensive reforms of Nigeria’s processes will continue to trigger hauling of fiery darts at his contempt for critical issues that affect the common good and future of the country he governs. Those who continue to insult people who criticise President Muhammadu Buhari’s handling of Nigeria should note that the current surprise package from Rivers State on VAT should be seen as the beginning of manifestations of so many writings on the walls our leader has been ignoring. The gurus who advise on legacy projects and reputation management of the Buhari’s presidency should tell our leader that he has not seen anything yet.

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They need to tell him that time is running out on the expediency of restructuring this convoluted federation. The president’s men, party leaders and supporters need to tell our leader this inconvenient truth: that his presidency’s mismanagement of the gospel of Fulani herdsmen according to Miyetti Allah has not only caused food insecurity in the country, that bigotry has also destroyed the North and polarised Nigeria on his watch. Who will tell our leaders at all levels in Abuja that insurgency that has become big business has ruined what is left of the North almost irretrievably. Who will tell the president that the crisis merchants in Abuja will also want to cause distraction for him at this time through what they will call the “War on Wike and his wickedness over VAT” at this time? Who will tell our president that the battle to re-possess the Abuja’s possession called VAT will be a meretricious one, after all if he does not dust up that 2018 El-Rufai Committee Report on Restructuring of this federation that is slipping away from his presidential grip? Who will tell the president that even the national Governors’ Forum may shock his presidency soon when they go to court to force him to accept that Nigeria is the only federation within the Forum of Federations that doesn’t practise state police policy? Who will advise the president about the need to allow the VAT issue to be the starting point for the practice of fiscal federalism, which is critical at this time? Who will tell our leaders that he needs to set up his own personal ‘Truth and Understanding Committee’ on this demand called ‘Federalism’ that may be the only legacy project that will define his presidency? Who will tell our leader who said he would not leave Nigeria as a failure to reflect on why even the Governor of his state, Katsina, the Governor of Kano State, the economic capital of the North too, among others in the North, are criticising his open grazing strange policy and his coldness to political reforms of the federation?

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There is no need to raise any dust over the domain of VAT. It isn’t a product of any democratic process. The ‘militricians’ who are the makers of this unitary system of government they introduced in 1966 made it and entrenched same public account system into the inexplicable federal system that has entrenched consolidated revenue system to be shared in Abuja every month by all the federating units. Yes, the military politicians introduced the apple of this discord to us in 1994 five clear years before 1999 when this constitution was made. By the letters of the law, it is a federal arrangement and that tax has since been an exclusively federal affair. The law is clear on this but the spirit of the law doesn’t make it equitable.

There have been widespread protests over revenue sharing formula, which doesn’t make you collect according to the proportion of your contributions. Let’s leave the rest to the fireworks in the courts of law and public opinion. So, let the warriors over VAT note that war on taxation has always been part of the critical factors that drive agitation for independence and resource control. Remember the ancient war of ‘On this day, no ‘taxation without representation’ between the British colonialists and the Americans, which eventually led to the independence of the Americans from the British?

Value Added Tax (VAT) was introduced by the Federal Government of Nigeria and is provided for by the Value Added Tax Decree 102 of 1993, which became effective in 1994. The law then required manufacturers, wholesalers, importers and suppliers of VATable goods and services to be registered within six months of commencement of business. Such a registered person is expected to charge and collect VAT on supplied goods and services. The amount collected constitutes the VAT output.

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On the other hand, a purchaser of VATable goods and services is also expected to pay VAT of five per cent on the goods and services supplied to him. These constitute the VAT input, while the difference between the output and the input represents the amount payable to the FIRS (Federal Inland Revenue Service). Therefore, the amount is payable where the output tax exceeds the input tax. And where the input exceeds the output tax, this may be claimed from the revenue.

The first country to implement VAT as we know it today was France in the early 1950s. The French VAT was a transformation of the existing French production tax. Initially, the system consisted of two different taxes. One tax on production was based on the sales price of merchandise and borne by the end manufacturer.

So, a story that an Appeal Court in Abuja has halted Rivers and Lagos States from collecting VAT should be cheering to the ‘federalists’ in Abuja and indeed the FIRS. The Court of Appeal in Abuja has halted the Rivers State government from collecting Value Added Taxes VAT until all legal disputes relating to the matter are resolved. The news broke on the day the mother of all VAT-generating states, Lagos legalised its VAT collection, following the legal wind of change that blew the deal in the way of federalism last month in Rivers State.

The court ordered that the judgment of the state high court from which the state drew authorities to collect the tax should not be implemented yet.

Justice Haruna Simon Tsanami who issued the order in Abuja on Friday also directed that the law passed by Rivers State House of Assembly and assented to by Governor Nyesom Ezenwo Wike must not be implemented. The appellate court held that since parties have submitted themselves to the authorities of the court for adjudication of the matter, they must not do anything that would destroy the subject matter of the appeal. In specific terms, Justice Tsanami granted status quo ante in favour of the Federal Inland Revenue Services (FIRS) and against the respondents. The matter has been slated for September 16 for a hearing of the motion for joinder by Lagos State. FIRS, in an appeal marked CA/PH/282/2021, is praying the court to set aside the judgment of a Rivers State High Court, which granted powers to the state to collect Value Added Tax (VAT).

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This is a time to appeal to our leaders in Abuja that ‘fiscal federalism’, the point at issue here is a powerful idea, whose time has indeed come. And no power on earth can repel it. ‘Fiscal federalism’ is an essential aspect of restructuring most people have been talking about except some power elite in some parts of the country who don’t care about what happens to their agonising people at this time.

‘Fiscal federalism’, is part of broader public finance discipline, which defines financial relations between units of governments in a federal government system. The term was introduced by the German-born American economist Richard Musgrave in 1959. There is no conceptual confusion at all: it deals with the division of governmental functions and financial relations among levels of government.

The theory of fiscal federalism assumes that a federal system of government can be efficient and effective at solving problems governments face today, such as just distribution of income, efficient and effective allocation of resources, and economic stability.

Under this system, allocation of resources can therefore be done effectively by states and local governments. Musgrave argues that the federal or central government should be responsible for the economic stabilisation and income redistribution but the allocation of resources should be the responsibility of state and local governments. This is where VAT administration comes in at this time in the context of the letters of the law.

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According to experts on this finesse, the following are benefits of fiscal decentralisation: regional and local differences can be taken into account; lower planning and administrative costs; competition among local governments favours organisational and political innovations; and more efficient politics as citizens have more influence.

And so our President who is expected to set the tone for Nigeria’s leadership of the black race Nelson Mandela once hinted at, should read the writing on the wall now and juxtapose the letters therein with the warning of iconic Steve Biko to the black race:

‘…I would like to remind the black ministry, and indeed all black people that God is not in the habit of coming down from heaven to solve people’s problems on earth’.

Certainly, God won’t come down to help Buhari solve Nigeria’s problem at this time. Reason: Our own Buhari should read the writing God has used Governor Wike, et al to put on the wall at this time. Failure to decode and discern that well can lead to failure he dreads so much.

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