AT (Value Added Tax) is a consumption tax that many countries throughout the world have embraced and approved. It is difficult to evade and reasonably simple to manage because it is a consumption tax. VAT is a sort of consumption tax from the buyer’s standpoint. It is a tax on the value added to a product, material, or service from the seller’s perspective, while it is a tax on the stage of production or distribution from an accounting one. It is based on the amount of value-added that each exchange generates. It is an indirect tax paid by someone other than the person who pays the tax or bears the burden.
A value-added tax is a tax imposed on a product that is consumed in all of the Federation’s States.
Be that as it may, on the 19th of August 2021, Governor of Rivers State, Nyesom Wike, signed the Rivers State Value Added Tax Law into law, which provides for the imposition and administration of Value Added Tax (VAT) in Rivers State. The Value Added Tax Law No. 4 of 2021 imposes a 7.5% VAT on all taxable products and services, save those exempted in the Law’s Schedule.
By legislation, the Rivers State Internal Revenue Service (RSIRS) is in charge of administering, implementing, assessing, collecting, and accounting for money collected. This follows the Federal High Court, Port Harcourt Division’s ruling on Monday, August 9, 2021, in the matter of Attorney General for Rivers State vs FIRS and Attorney General of the Federation Suit No FHC/PH/CS/149/2020, which issued an order prohibiting the Federal Inland Revenue Service (FIRS) from collecting VAT and PIT in Rivers State.
In a similar vein, The Lagos State House of Assembly referred the bill on the state’s Value Added Tax (VAT) to the finance committee on September 6th in an accelerated reading, and following a scaled first and second reading, it was passed on Thursday, September 9th, and duly signed by the Governor of the wealthiest state in Nigeria, Sanwo Olu on Friday 10th September.
Lagos residents and businesses are by far the largest VAT contributors in Africa’s most populated country. The tax is currently administered by the Federal Inland Revenue Service, which then distributes 85% of the proceeds to state and local governments. While Lagos collects more VAT than other states, it receives less in return than it gives to the federal government.
According to figures from the National Bureau of Statistics, VAT accounted for 1.53 Trillion Naira ($3.7 Billion) of the Federal Government’s total tax revenue of 4.95 Trillion Naira last year. The kind of VAT that the court verdict allows Lagos, Rivers, and the rest of the country’s 34 states to handle accounts for over half of that total.
The decision comes at a time when states are clamouring for greater resource management in order to have more economic control over their affairs, as Abuja struggles with declining revenue and rising debt service ratios.
Nyesom Wike, the Governor of Rivers State, moved quickly to sign a bill allowing the state the ability to collect VAT, rather than spending time enforcing the court decision, which the FIRS has stated it will appeal.
Mr. Femi Falana, a human rights lawyer, said on August 29 that the Federal High Court in Port Harcourt’s ruling against the Federal Inland Revenue Service’s (FIRS) administration and collection of Value Added Tax (VAT) not only confirmed but also strengthened the campaign for restructuring through litigation.
Falana asked all state governments to join Rivers State Government in fighting the ruling.
The “restructuring” of Value Added Taxes in Nigeria exposes the Federation to “economic battles” between states, as some will clearly gain more than others on this front, while others may have less access to VAT.
This move should serve as a wake-up call to other State Governors who are willing to move away from primitive sentiments and embrace the critical need to develop their environment for the purposes of achieving new income redistribution, which has made most states in Nigeria completely reliant on the Federal Government to pass similar laws to make ends meet.
Nigerians must accept the new wind of change as an era of restructuring that is now unfolding through rigorous thinking and legislation rather than wars, adding that leaders around the world should put on their thinking caps and show interest in combating poverty and the causes of its openness among their people.
Because the economic dynamic does not support the distribution of wealth in any haphazard manner, the necessity to redirect energy toward attaining growth should be welcomed with renewed enthusiasm. Eyes have been opened, and a strong desire for progress must be visible in all aspects of economic life. The distinction between rational life and living entirely on faith clearly distinguishes understanding from information acquired via better or worse schooling. Economic thievery is unquestionably coming to an end.
Coastal States in Nigeria are also being asked to amend their legislation to include port VAT taxes on goods and services. These regulations must also include the payment of VAT on goods and services originating in foreign landlocked nations such as Niger, Chad, and others.
To be honest, Nigerian politicians have been erecting a castle in the sky for decades, while the country’s economic growth has been hampered by poor judgment or, in the extreme, self-indulgence, which has stoked the materialistic thirst. Nigeria’s people must no longer be treated with contempt, but with pride.
Whatever is produced in Lagos should be distributed to the State of Lagos, and whatever is collected in Rivers should be distributed to the state of Rivers. That should be the case everywhere.
You cannot earn revenue in Rivers or Lagos and give it to another state, whereas revenues generated in the Northern States are returned to the Northern states, as Kano State shows.
What prevents the Federal Government from returning taxes collected in Lagos and Rivers states to their respective states if VAT collected in Kano is returned to Kano? It is clear that there is a double standard.
Given the impact on revenue, it is hardly surprising that, aside from the FIRS, certain Northern states have expressed vehement resistance to the ruling.
Furthermore, pooling VAT to split among the states would promote inactivity (lazing around) on the part of the States and keep the country poor indefinitely. Only by taking control of the earnings can State and Local governments be driven to encourage increased economic activity.
It is important to note that the FG’s VAT collection is an outlier because VAT is location-specific. As a result, it is not included in the exclusive list.
Consumption cannot be done in proxy because it is a consumption tax. In Uyo, for example, one cannot eat yam on behalf of another person in Lagos. As a result, VAT should be location-specific, as the Constitution intends.
Consumption of alcohol is illegal in some states around the country. So, why should a state allow alcohol consumption and pay for the consequences, while the revenues of the commodity’s sale are split with a state that does not allow it?
Kano, for example, has outlawed mannequins, alcohol, cigarettes, and other such businesses from operating in the state but still collects VAT. Kano should be barred from benefiting from the proceeds of these products for the sake of fairness because it appears that they are reaping off from where they never sowed.
Alcoholic beverages are manufactured in Southern states, but the VAT on them is paid to the Federal Government, which then distributes it to all states.
There is a groundswell of support for fiscal federalism or genuine federalism. It is largely seen as a tool for long-term peace and unity in Nigeria, as well as geographically dispersed quick economic development.
It is past time for states to stop relying on central government revenue distribution. As a first step in the correct path, the states’ VAT collection authority should be restored. This will allow them to look inward and realize their full potential.
Governments at all levels must work to develop their people and natural resources so that they can become more self-sufficient and economically viable. The federating states’ reliance on federal funds for survival will stifle the people’s entrepreneurial, industrious, and resourceful spirit while also encouraging sloth. Each state should be given the opportunity to reach its full potential.
VAT is not the end of the story; it is merely the start of the reality we are about to face. As a result, both the Federal and State governments must prepare to meet the leadership challenge that lies ahead. A government can undertake a variety of things to ensure good governance.
Allow each state to create its own tax base by looking inward. Lagos is still viable today due to the development of its human capital by successive governments. State legislatures in other states might consider doing the same. Every state has its own set of resources that offer it a competitive advantage over others, so let’s make the most of what we have.