Whether government at the three levels of governance like it or not, Nigerians are the winners as the fight for the soul of Value Added Tax (VAT) and Personal Income Tax (PIT) is taken to the doorstep of the Federal Government.
A Federal High Court sitting in Port Harcourt and presided over by Justice Stephen Dalyop Pam, had declared that the right to collect VAT and PIT is reposed on the Rivers State government and not the Federal Inland Revenue Service (FIRS). The Rivers State government had among others urged the court to declare that, by virtue of the provisions of items 7 and 8 of the Part II (Concurrent Legislative List) of the Second Schedule of the Constitution, the power of the Federal Government to delegate the collection of taxes can only be exercised by the state government or other authority of the state and no other person.
However the FIRS has now taken the case to the Court of Appeal while Lagos State government is seeking to be joined as a co-defendant with Rivers State government in the matter.
May I say that the verdict of the court does not change the fact that many Nigerians have been paying VAT to the government without knowing and they will continue to pay to either the Federal or State Governments. The beauty of the war is the uncovering of the insider intrigues in the highest level of government and the manipulation of the Nigerian resources to satisfy a section of the country in the name of nationhood.
Another gain to the people is the probable benefits that would be derived from infrastructural development if more resources are available to lower tiers of government. The long imbalance in the resource sharing and the seeming pampering of a section against the other has festered for a long time, thus, obliterating the essence of true federalism.
Imagine a state groaning in pain of insufficient financial resources to foster developments in its jurisdiction with some states contending with grossly inadequate infrastructures while burgeoning salary bills are also raring their heads.
VAT was introduced via Decree No.102 of 1993. It replaced sales tax operated under Decree No.7 of 1986, which was administered by states and the Federal Capital Territory (FCT). By contrast, VAT is administered by the FIRS and the revenue is shared among all three levels of government. Both VAT and sales tax fall under the category of consumption tax. Currently, Section 40 of VAT Act requires that the VAT pool be shared 15 per cent to the Federal Government; 50 per cent to states, and 35 per cent to LGs (net of 4% cost of collection by the FIRS). 20 per cent of the pool is shared based on derivation.
While throwing their weight behind the step taken by the Rivers State government, the 17 Southern Governors at a meeting held on Thursday, 16th September in Enugu were unanimous in their agreement that state government should collect VAT. A former Deputy Senate President, Ike Ekeremadu has also appealed to his colleagues in the legislative chamber not to interfere with the process until the court issues a verdict on the matter.
We must recall that the FIRS had hurriedly ran to the National Assembly after the high court judgment to seek their support in removing VAT from the concurrent legislative list to the exclusive legislative list.
Some opinion molders have however anticipated a regime of multiple taxations if the FIRS prayers are not granted by the appellate court. The thought is that the low income earners would bear the brunt of high cost of goods. But to assuage the fear of multiple taxation, it is my opinion that balance of trade approach where all nations with VATs zero-rate exports and impose their VATs on imports would remove over taxation of goods. This approach is also referred to as the destination principle because a commodity is taxed at the location of consumption rather than the state where it is produced. Majority of the experts on tax would recommend this principle in international trade because it creates a level playing field for every country where VAT is paid.
With a system aided by technology, this approach would go a long way in engendering a strong direction for tax administration within the components of governance.
The fact of the matter is that maintaining the status quo on every issue would not bring sanity to a seemingly biased system. Testing our laws and processes is one of the ways to strengthen the Nigerian federal system so that no section of the country would feel cheated in any aspect of relationship as a nation. We understand that there has been intense lobbying of the Governors of the South Western States by the stakeholders and the majority of the Northern Governors who have been the highest gainer hitherto. This war should rather be seen as a pathway to the ultimate federalism Nigerians crave for rather than a fight between the components of government.
The strength of federalism is fairness and justice. This is the brotherhood Nigeria and indeed Nigerians deserve.
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