By AYOOLA OLAOLUWA
The imbroglio generated by a recent court ruling ceding the power to collect Value Added Tax (VAT) to states is threatening the continued collection of the levy in the country, with many companies and business concerns in dilemma over who to pay the levy to between the Federal Inland Revenue Service (FIRS) and their respective state internal revenue services.
It would recalled that a Federal High Court (FHC) sitting in Port Harcourt, the Rivers State capital, had on Monday, August 9, 2021, ruled that the Rivers State government, and not FIRS, is entitled to collect several levies, including the VAT and Personal Income Tax (PIT) in the state.
The court, which granted all the 11 reliefs sought by the Rivers government, affirmed that there was no constitutional basis for FIRS to demand and collect VAT, withholding tax, education tax and technology levy in Rivers State or any other state of the federation, being that the constitutional powers and competence of the federal government was limited to taxation of incomes, profits and capital gains, which did not include VAT or any other species of sales, or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the constitution.
According to the presiding judge, Justice Stephen Pam, only states are constitutionally entitled to impose taxes such as consumption or sales taxes in their territories.
He therefore ruled that henceforth, FIRS should stop collecting VAT and personal income tax, while the Rivers State government should be in charge of the PIT and VAT collection in the state.
Before the landmark judgment, the 36 states and 774 local government councils collect 50% and 35% VAT proceeds respectively, leaving the Federal Government with 15% (net of 4% cost of collection by the FIRS).
Twenty percent (20%) of the pool is shared based on derivation. The 20% derivation, checks revealed, was accommodated after the Lagos State government won a case it instituted in court against equal sharing of VAT revenue.
The ruling sent a shockwave across the country, with both the beneficiaries and losers of the judgment moving either to enforce or thwart it.
While the federal and state governments are still in shock, the Rivers State government immediately put machinery in motion to enforce the ruling.
In a swift move, Rivers State Governor, Nyesom Wike, on Thursday, August 19, signed into law the bill on VAT collection in the state passed into law by the Rivers State House of Assembly (RSHA)
Speaking at the Government House, Port Harcourt, after signing the bill into law, Wike said that the judgment had addressed the illegality perpetrated by the Federal Government in the collection of VAT in states.
According to the governor, states are deliberately strangulated and turned to beggars with the take over and collection of taxes meant for them by federal agencies.
“But we are standing on the part of history as representatives of the state to have taken the bull by the horns to challenge the illegality of the Federal Government through the Federal Inland Revenue Services.
“We are all aware that states have already been strangulated. Most states depend on allocation from federation account. States have been turned to beggars.
“Hardly will any day pass that you won’t see one state or the other going to Abuja to beg for one fund or the other.”
The governor vowed that henceforth, the state would no longer pay VAT generated in the state into the federation account.
“In Rivers State, we awarded contract to companies and within the last month, we paid over N30billion to the contractors.
“Now, look at 7.5 per cent of N30billion of contracts we awarded to companies in Rivers State, you will be talking about almost N3billion from that source alone.
“Now, at the end of the month, Rivers State Government has never received more than N2billion from VAT.
“So, I have contributed more through the award of contract and you are giving me less. What’s the justification for it? From now on, the 7.5 per cent deducted as VAT in Rivers will not be given to FIRS”, Wike vowed.
Worried by Governor Wike’s order to businesses operating in Rivers to start paying VAT deductions to the state revenue service, and the spiraling effects beyond the shores of Rivers, FIRS warned taxpayers, particularly those in Rivers, to ignore Wike and continue to pay to it in order to avoid paying penalties.
According to Abdullahi Ahmad, FIRS Director of Communications and Liaison Department, the agency decided to issue the directive following numerous enquiries in the aftermath of the recent judgment.
Ahmad advised taxpayers that since the organisation had already appealed the judgment, they should continue to pay their VAT to the federal agency.
“The attention of the FIRS has been drawn to the trending report that on 19/08/2021, the Government of Rivers State took steps to enact a Value Added Tax Law for Rivers State following the Judgment of the Federal High Court Port Harcourt Division on August 9, 2021 in Suit No: CS/149/2020.
“The suit was about who has the constitutional duty for the collection of VAT and Personal income tax in Rivers State.
“We wish to inform the general public that before the above-mentioned steps taken by the Government of Rivers State, FIRS had lodged an appeal against the above judgment and had also filed an application for stay of execution of the judgment as well asking the court for an injunction pending the determination of the appeal.
“All parties to the suit are aware that both applications were heard on the 19th and 20th August 2021 and are awaiting the decision of the court.
“Given that the Court of Appeal is yet to rule on the Appeal from the Judgment of Federal High Court and that the Federal High Court is yet to deliver a ruling on FIRS’s applications for stay of execution and injunction” he explained, while urging the public to continue to comply with their VAT obligations until the matter is resolved by the appellate court.
Meanwhile, as the controversy lingers, taxpayers, especially in Rivers, Lagos, Ogun and Delta States are in a dilemma on who to remit their VAT to between their state governments and FIRS.
Some chief executive officers and directors of some companies, who spoke to our correspondent in Port Harcourt, Lagos, Asaba and Abeokuta on the development, said they were ready to remit the 7.5% consumption levy already collected from consumers to government, but the major barrier remains the court ruling stopping FIRS from collecting it.
According to one of the respondents, Jude Braide, MD/CEO of Juscon Wire and Cables, Port Harcourt, there is growing confusion among businesses on who to pay VAT revenue to.
“Before the judgment, we were paying VAT revenues to FIRS. But after the ruling, we (business owners) were approached by men of the Rivers State Internal Revenue Service (RSIRS) who advised us to start paying to them.
“While we were not against paying, we are worried that we could be made to cough out the funds twice. What happens if we pay to the Rivers government and the appeal goes against it? Won’t FIRS force us to pay the VAT already remitted all over again?
“The same also applies to FIRS. If we pay the federal agency and it loses in court, what is going to be our fate,” lamented Braide.
Another respondent, the CEO of a trading store at the Alaba International Market in Lagos who did not want his identity disclosed for fear of retribution, said he and his colleagues are confused over the right agency to pay VAT proceeds to.
He claimed their plight is worsened by the different positions taken by commentators on national televisions on the right party to pay to.
According to him, while some of the legal experts claimed they should pay to their host state governments as the Rivers court ruling remains biding and has not been vacated or put on hold, others maintained that since the ruling had been appealed, the status quo remains.
“But we are confused over which one is the status quo. Is it what is obtained before the judgment of the Rivers high court, or after the appeal,” declared the source.
Six out of ten respondents said they will rather hold on to VAT proceeds collected by them, three said they will prefer to continue to pay to FIRS , while only one said he preferred paying to his state internal revenue service.
But a lawyer, Barrister Benjamin Bisket of Bisket and Partners in Ikeja, Lagos, told our correspondent that his firm’s response to the imbroglio is to advice its clients to hold on and not make any payments to either FIRS or states internal revenue boards.
“If we ask them to pay to FIRS, what happens if states win in court? State actors are also very vindictive. If you go against them, they can go to any length to run you out of town.
“Several cases abound in the past where states agents confiscated our clients’ vehicles or sealed up their factories and offices for not cooperating with them.
“So, in other to play safe, our clients had been advised to freeze further payments till further notice. We are monitoring the situation and meeting with all parties. We will keep advising our clients as things unfold,” Bisket stated.
Speaking on the developmental expert, Dr. John Koyejo, the principal partner at John Kojejo and Co., warned that the government, both at the federal, state and local government levels, will experience cash crunch if the crisis lingers.
“As it is, several businesses are withholding payment of VAT into government coffers until they get the true picture of things.
“If the trend continues, everyone will suffer. My advice is that interested parties should come together to find a political solution to the problem or hasten up the legal process so that things can go back to normal”, Koyejo admonished.