The muscle-flexing power tussle over Value Added Tax and related taxes in Nigeria, has recently taken an interesting twist akin to World Wrestling Entertainment’s (WWE) Royal Rumble match, with Challengers – Tag Team Rivers and Lagos States – locked in a battle Royale with Defending Champion – Federal Inland Revenue service (FIRS), where the defending Champion is seriously losing his Championship belt, due to the superior firepower of his Challengers coming at him from his blindside!
The Legal wrestling match about taxation and taxes has been a long and tough one, but every inch of the epic battle between institutionalized oppression versus freedom, has been an ageless lesson and a footprint on the sands of time! But first, let me walk you through the dirty VAT war, to bring you up to speed!
A Federal High Court sitting in Port Harcourt, Rivers State, on Monday 9th August 2021, held that the Rivers State Government and not the Federal Inland Revenue Service (FIRS), was the rightful authority to collect Value-Added Tax (VAT) and Personal Income Tax (PIT) in the state.
The trial judge, Justice Stephen Pam, equally restrained the FIRS and the Attorney-General of the Federation, both 1st and 2nd defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay both PIT and VAT to FIRS.
In his judgment in the suit by the Attorney-General for Rivers State against FIRS and AGF, Justice Pam granted all the 11 reliefs sought by the Rivers Government.
The court held that there is no constitutional basis for the FIRS to demand and collect VAT, Withholding Tax, Education Tax and Technology Levy in Rivers 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 does 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.
Meanwhile, the judge had dismissed preliminary objections by the defendants, that the court lacks jurisdiction to hear the suit and that the case should be transferred to the Court of Appeal for interpretation.
The defendants also argued that the National Assembly ought to have been joined in the suit, but Justice Pam held that the issues of taxes as raised by the state government, were issues of law which the court is constitutionally empowered to entertain.
On the flipside, Rivers State Government asked the court to declare that, the constitutional power of the Federal Government to impose taxes and duties, was limited to items listed in items 58 and 59 of Part 1 of the Second Schedule of the 1999 Constitution (as amended).
The state government also urged the court to declare that, by virtue of the provisions of items 7 and 8 of 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.
And so after a diligent review of the issues raised by the plaintiff and the defendants, Justice Pam held that the plaintiff had proven beyond doubt, that it was entitled to all the 11 reliefs sought.
What this means is that the court agreed with the Rivers Government, that it was the state and not FIRS which is constitutionally entitled to impose taxes enforceable or collectable in its territory, like Consumption or Sales tax, VAT, Education and other Taxes or Levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1of the Second Schedule of the 1999 Constitution as amended.
The court declared that the defendants were not constitutionally entitled to charge nor impose levies, charges or rates (under any guise or by whatever name), on residents of Rivers and indeed any state of the federation.
Again, the Rivers Government asked the court to declare all statutory provisions made or purportedly made, in the exercise of the legislative powers of the Federal Government, containing provisions which are inconsistent with the powers to impose tax and duties, as prescribed by items 58 and 59 of Part I of the Second Schedule of the 1999 Constitution, or inconsistence of the power to delegate the duty of collection of taxes, as contained in items 7 and 8 of Part II of the Second Schedule of the Constitution, are unconstitutional, null and void.
Addressing journalists after the judgement, lead counsel for the Rivers State Government, Donald Denwigwe, SAN, explained that the case is all about the interpretation of the constitution, as regards the authority of the government at the state and federal levels, to collect certain revenue, particularly, VAT.
“So, during the determination of the matter, some issues of law were thrown up like, whether or not the case should be referred to the Court of Appeal for the determination of some issues.”
“The court noted that the application was like asking the Federal High Court to transfer the entire case to the Court of Appeal. In which case, if the court so decides, there will be nothing left to refer back to the Federal High Court as required by the constitution.”
Denwigwe informed that the court refused that prayer, declaring that the case was in its proper place before the Federal High Court for determination.
The Rivers State Lead Counsel explained that this declaration implies that it had become unlawful for such taxes as VAT in Rivers State, to be collected by any agency of the Federal Government.
“In other words, the issue of VAT in the territory of Rivers State and Personal Income Tax, should be reserved for the government of Rivers State,” he said.
Meanwhile, Counsel to FIRS, O.C. Eyibo, could only manage to say he would study the judgment and advise his client accordingly.
In a related development, the Chartered Institute of Taxation of Nigeria (CITN) has revealed that it is considering the legality of the collection of Value Added Tax (VAT) and Personal Income Tax (PIT),by the Federal Inland Revenue Service (FIRS)instead of state governments, following several court judgments declaring FIRS actions unconstitutional.
Citing the judgment by Justice S. Pam of the Federal High Court, Port Harcourt, CITN Registrar and Chief Executive Officer, Adefisayo Awogbade said it was the Rivers State Government and not the Federal Government, which is constitutionally empowered to collect VAT and PIT.
According to him, “the court held that there is no constitutional provision backing the collection of VAT, Withholding Tax, Education Tax and Technology Levy in Rivers State or any other state of the Federation by the FIRS.”
“This was owing to the fact that the Federal Government is restricted by the 1999 Constitution of the Federal Republic of Nigeria as amended, for taxation of incomes, profits and capital gains and these do not in any way include VAT or any levy other than those specifically mentioned in Items 58 and 59 of the Exclusive Legislative List of the Constitution.”
To buttress his point, he cited a related case in October 2019, which reads: “The Federal High Court, Lagos Division, in the Registered Trustees of Hotel Owners and Managers Association of Lagos Vs. A. G. Federation & Others, while considering the validity of the Hotel Occupancy and Restaurants Consumption Law of Lagos State, upheld the powers of the Lagos State Government to charge and collect Consumption Tax from hotels, restaurants and event centers within the state.”
“The Court held that based on the Constitution and the Taxes and Levies Act, the power to impose consumption tax was a residual power within the exclusive competence of States.”
“It restrained the FIRS from imposing VAT on goods and services consumed in hotels, restaurants and event centers, as this was already covered by the Lagos State Law.”
The statement equally cited the Emmanuel Chukwuka Ukala vs. FIRS & A.G. Federation in Suit No. FHC/PH/CS/30/2020, by Hon. Justice I. O. Oshomah, sitting at the Port Harcourt Division of the Federal High Court, on December 11, 2020, which expressly held that, the National Assembly had no power to enact the VAT Act.
Following his arguments, Awogbade noted that, while the Institute was in possession of the first and second cases mentioned, it is making efforts to get a certified true copy of the third case.
“From the foregoing decisions, it is evident that this is not the first time the VAT Act has been declared unconstitutional. As an Institute, we were waiting for the appellate courts to take a definite position on the matter before making our comments. In view of the length of time that it takes for an appeal to be determined in our country, we think it will be in the public interest not to wait any longer, hence this press release”.
“As soon as we receive the certified true copy of the judgment, our legal advisers will study it and advise us accordingly. When that is done in the next few weeks, the Institute will take an informed position and the public will be duly communicated. We are mindful of our statutory mandate as a tax regulatory professional Institute and we will not shirk our responsibility to the public, in all matters relating to taxation in Nigeria,” he said.
However, not about to easily let go of their precious proverbial goose which lays golden eggs, the Federal Inland Revenue Service (FIRS) has launched a desperate, dying-minutes, lame attack on Revenue-rich States, by appealing to the National Assembly (NASS) to include the collection of value-added tax (TAX) in the exclusive legislative list.
In a letter sent to the National Assembly, the FIRS told the house of representatives that the request would increase revenue generation for the government. FIRS in their appeal, sought the NASS to allocate all adjudication of tax disputes ranging from Federal Tax Laws, Company Income Tax, Petroleum Tax, Income Tax, Capital Gain Tax, Stamp Duty, VAT and Levies, as well as other laws, regulations, proclamations, government notices and rules, to the federal collector.
“The Federal Inland Revenue Service (FIRS) proposes for the insertion of value-added tax immediately after Stamp Duties, under item 58 part II of 2nd schedule of the 1999 Constitution of the FRN,” the letter reads. Expectedly, the FIRS has denied authorizing this letter, but not in any way relent in their fight!
Now, what beats my imagination is this puzzle; although the position of the constitution is clear, why is the FIRS so set on a collision course with the rule of law – especially after the court had nullified and voided the VAT Act?
A look at the Constitution shows that Part II of the concurrent legislative list of the Second Schedule of the 1999 constitution as amended, delegates the collection of taxes to the state government or other authority of the State.
This begs the question; why is the FIRS fighting against the law to collect taxes – even when the statutorily obligated bodies want to do their jobs? Is it love for Nigeria which is driving this self-destruct fight or is there more to the FIRS’ fight than meets the eye? Your guess is as good as mine!
In any case, Nyesom Wike, governor of Rivers State, on Thursday 19th August 2021, did sign the VAT collection bill into law. Explaining the State’s position, Wike asked, “why would the state government award a contract of N30 billion and then7.5 percent VAT (almost N3 billion), would be deducted and paid to the federal government?”
“Now, look at 7.5% of N30billion of contracts we awarded to companies in Rivers State, you will be talking about almost N3billion from only that source. 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 contracts and you are giving me less. What’s the justification for it?”
He also lamented plans by the FIRS to introduce road tax which would take away more duties from the states, further emasculating them financially.
Not about to give up without a fight, the Federal Inland Revenue Service (FIRS) has now openly warned taxpayers to continue paying their Value Added Tax (VAT) to it, failure of which will attract penalties.
The FIRS issued the directive following numerous enquiries to the Service, in view of the judgment obtained by the Rivers State Government at the Federal High Court, Port Harcourt, which ruled that states and not the Federal Government, are constitutionally empowered to collect VAT.
In a statement on Sunday the 22nd of August 2021, the FIRS said that since it has already appealed the Rivers judgment in which it is seeking a stay of execution order, the status quo ante subsists on the VAT collection authority, hence taxpayers should continue to pay their VAT to the FIRS.
The statement signed by Mr. Abdullahi Ahmad, Director of Communications and Liaison Department, reads: “The attention of the Federal Inland Revenue Service(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 9th August 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 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 Judgement of Federal High Court and that the Federal High Court is yet to deliver a ruling on FIRS’ applications for stay of execution and injunction, members of the public are advised to continue to comply with their Value Added Tax obligations, until the matter is resolved by the appellate courts.”
But just before the FIRS could savor the taste of victory in this prolonged tax war, the law in a swift and decisive move, took the wind off their sail, with what seems like the final nail that seals the coffin of the tax masters. How so?
The Federal High Court, Port Harcourt, Rivers State, early in September 2021,dismissed the suit by the Federal Inland Revenue Service (FIRS),which seeks to stop the Rivers State Government from commencing collection of Value Added Tax (VAT).
FIRS in suit no FHC/PH/CS/149/2020 had approached the court seeking a Stay of Execution on the earlier judgement of the court, which forbade the FIRS from collecting VAT, as it was constitutionally the role of state governments.
Following the judgement against them, the FIRS had sought the High Court to stop the Rivers State Government from executing the judgement. But, Justice Stephen Pam, in his ruling, said granting the application would negate the principle of equity. The Judge noted that, since FIRS was, ab initio, acting in error by collecting VAT in Rivers State and has huge burden of refund of those monies, there was need not to allow it incur further liability.
Pam noted that in as much as the state government and the state legislature has enacted a law in respect of the VAT, that courts were bound to obey laws. He noted that the Rivers State Government and the State Assembly, has duly enacted Rivers State Value Added Tax No. 4, 2021,making it the legitimate right of the state to collect VAT.
Furthermore, the judge explained that, a law remains valid until it has been set aside by a court of competent jurisdiction, adding that the law enacted by the Rivers State legislature is subsisting and so remains valid until set aside.
Pam concluded that, granting the prayers of FIRS is tantamount to committing murder and so the prayers cannot stand – on that note, he dismissed the suit!
In reaction, Counsel for Rivers State Government, Mark Agu, commended the court for standing up in defense of justice, noting that the state assembly had already made a standing law on VAT.
Agu disclosed that FIRS had approached the court with two prayers, but withdrew the first prayer which seeks injunction, leaving the other one which asks the court to stay the execution of that judgement.
He said: “The first Defendant, FIRS, sent their appeal against the judgement of the Honorable Court delivered, wherein the court allowed the Rivers State Government to collect their VAT.Subsequently after the judgement, Rivers State has its own law on that, the Rivers State Law on VAT No. 4, 2021. Having appealed, they were asking for an injunction and secondly asking for stay on the judgement.”
“Today, the court has delivered its ruling dismissing the said application for stay, though, without cost.The court’s reasoning is that if it should grant stay, it is more or less like overruling itself and the court is empowered to recognize all laws enacted by the national assembly or the state house of assembly, therefore the law stands as substantive. Therefore, the issue of collection of VAT as it stands today, Rivers State is entitled to still collect.”
But, counsel for FIRS, Reuben Wanogho, expressed displeasure with the stand of the court, noting that FIRS would not hesitate to appeal the ruling.“The court has delivered its ruling on the bases of how it saw the facts of the case. We do not agree with the ruling and we will take all necessary steps to challenge it. That is why the appellate System is there” he said.
“The appellate System is there to enable us ventilate our grievances, if for any reasons the court makes a pronouncement we do not agree with it.For sure we feel that the ruling should have gone in our favor, but the court has taken a position against us, so we will do the needful by taking it up immediately before the court of appeal.”
“We will challenge it. And we are hopeful that at the court of appeal we should be able to find our way. The appeal system is there to correct errors. The natural consequence of the ruling is that, the Rivers State Government will be collecting the VAT, but we will take steps to ensure that we ameliorate the situation as quickly as possible, ”Said the FIRS’ counsel.
Relishing the prospects of victory as declared by this latest judgment in the Tax Saga, Governor Nyesom Wike has sent a warning to tax defaulters, that severe sanctions await taxpayers who refuse VAT and sundry taxed payments to the Rivers government, in compliance with the court order.
In a state wide broadcast, Wike declared, “Consequently, I hereby direct the Rivers State Revenue Service, RSRS, to ensure the full and total implementation and enforcement of this law against all corporate bodies, business entities and individuals with immediate effect.”
“All corporate bodies, business entities and individuals are advised to willingly, truthfully and promptly comply with their tax obligations under this law, to avoid the full weight of the stipulated sanctions, including having their business premises sealed-up”.
“I wish to further assure every resident that, we shall as usual make effective use of the expected proceeds from this tax, to accelerate the development of our state and improve the wellbeing of everyone.”
Governor Wike concluded that what the Rivers State Government has done, is to contribute to the advancement of fiscal federalism, in which, states can feel empowered to explore their potentials, to generate internal revenue to address their development needs.
Adamantly, the federal Inland Revenue Service (FIRS), insists that the VAT Act supports them, saying “on the VAT Act we stand!”
FIRS Group Lead, Special Tax Operations Group, Mr. Matthew Gbonjubola, 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 the Value Added Tax, 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.”
“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 works only at the national level. VAT cannot work at the sub-national level. There is no country in the world where VAT works at the sub-national level because VAT works on the input /output mechanism”.
But, in a sensational tag team attack compounding the woes of the drowning FIRS which is currently grabbing unto straws for dear life, the Lagos State House of Assembly on Thursday 9th September 2021, passed the Value Added Tax (VAT) Bill, with Speaker Mudashiru Obasa directing the Acting Clerk of the House, Mr. Olalekan Onafeko, to transmit a clean copy to Governor Babajide Sanwo-Olu for assent.
Following the passage, Speaker Obasa commended his colleagues for their passion to see that the state continues to grow. “I thank you all for this historic exercise, ”he said.
Meanwhile, Governor Babajide Sanwo-Olu who jetted into the country immediately, signed the bill into law on Friday 10th September 2021, thus bursting the bubbles of the FIRS, which has insisted on riding its high horse instead of eating a humble pie and letting go of its stranglehold on taxpayers’ monies.
A new dawn is obviously upon us, as it appears the age-old ironfisted grip of the controversy-laden and corruption-infested FIRS on the jugular of Nigerians, is now coming unstuck! That’s the way the cookie crumbles, isn’t it?
However, in a move signaling the end of an era of tax dictatorship by the government at the center and the dawn of a new era of true fiscal federalism, where sub-national governments determine how their resources are utilized, the Akwa Ibom and Adamawa state governments on Tuesday 7th September 2021, aligned themselves with the move by the Rivers State Governor, Nyesom Wike, to stop the Federal Government from collecting Value Added Tax.
The Director-General, Media and Communications, Adamawa State Government, Solomon Kumangar, in an interview in Yola, the Adamawa State Capital, said that the collection of VAT by the states was the only way of reducing their dependence on federal allocations.
On its part, the Akwa Ibom House of Assembly said it would soon begin work on a bill that would empower the state to collect VAT, even as the governments of Ekiti, Osun and Benue states have said they are all studying the situation, so as to make an informed decision shortly.
It has become pertinent at this juncture to clarify the VAT myth. VAT is a consumption tax paid when goods are purchased and services are rendered. It is usually charged at a rate of 7.5 per cent(7.5%) – just for the records.
Solomon Kumangar quoted earlier, revealed on Tuesday 7th September 2021, that said the Adamawa State government might seek to be joined in the Rivers State versus the FIRS VAT suit as an interested party.
Speaking to the issue, Kumanger had this to say, “Adamawa State, which is heavily reliant on federal allocations and overstretched by the impact of COVID-19 and post-insurgency recovery demands of rebuilding, see the development in Rivers State as one of particular interest to it.”
According to Kumangar, “Adamawa State welcomes the court ruling as another avenue for states struggling with financial problems to utilize, extend and improve their internally generated revenues. Anything to extend and improve on our IGR is welcomed. So, we are keen on joining the River State Government, should the Federal Government appeal the judgment, which granted Rivers State the right to collect VAT in its domain”.
“Whatever will bring improvement to the IGR is a welcome idea for an insurgency ravaged state like Adamawa. The truth is that the collection of VAT by the states is the only way to assist the states, which are heavily dependent on federal allocations, to be able to wean themselves and meet their financial obligations to the citizens. So, if there are areas where revenues can be exploited and extended, surely the state government will welcome it. Surely it’s a case of interest to us and we would like to be joined.”Kumangar concluded. .
On its part, the Akwa Ibom State government has expressed disappointment that the government is not collecting VAT from oil companies operating in the state, despite being home to one of the largest oil and gas reserves in the country.
Addressing the State’s concern, Chairman, Akwa Ibom State House of Assembly Committee on Information, Aniefiok Akpan, said the House would commence working on the VAT bill as soon as possible. “We will start working on the bill. I don’t know whether it is going to be an executive bill or the House will initiate it. A member has indicated interest in bringing the bill, ”Akpan stated
Speaking on behalf of Lagos State, the Lagos State Commissioner for Information and Strategy, Mr Gbenga Omotoso, stated, “The court said granting the FIRS prayer is like murder; they (FIRS) went to court to say that the court should stay the execution, while they appeal the judgment. The court’s position is that an appeal is not a stay of execution.”
“I think Lagos has not got its own fair share of VAT. The state has always been at the forefront of the battle for true federalism. I think the verdict of the court, coming at this time, will strengthen the position of the Lagos State Government that Nigeria truly deserves true federalism as one of the pillars of our democracy. This is a consumption tax, there is no point staying action on it.”
Cashing in on the windfall, the Ekiti State Commissioner for Finance, Akintunde Oyebode, speaking on behalf of the state government, said, “We are seeking the opinion of the office of the Attorney-General and Commissioner for Justice; when the office is done with a comprehensive legal opinion, it will guide our next step. That is where we are now.”
Not about to miss out on this golden opportunity to right an age-old wrong, the Benue State government via its Commissioner for Finance, David Olofu, said the 36 states were still holding consultation on VAT collection.
He said the Chairman of the Nigeria Governors’ Forum, Kayode Fayemi, had given the position of the states concerning VAT law and that the governors would make their position known after the judicial process must have been exhausted.
Also wading into the murky tax waters, the Osun State government through the Chairman, Osun Internal Revenue Service, Mr Gbite Ademikanra, stated, “Whatever happens to Rivers will affect Osun. What most of us will do is to wait for the Supreme Court’s pronouncement on the issue. Once the Supreme Court makes a pronouncement, it covers all sub-nationals.”
Oil-rich and VAT-affected Bayelsa State has equally thrown its hat in the ring, with the Bayelsa State Commissioner for Information, Orientation and Strategy, Mr Ayibaina Duba, speaking on behalf of his State government, “We are trying to study the judgment and its implications for us. When we are done, we will come up with a position,”
Meanwhile, indefatigable Governor Nyesom Wike of Rivers State, has vowed not to relent in the fight, insisting that the state will go ahead to enforce the provisions of the State’s VAT law. He said, “Rivers money is not meant for Abuja people but for the development of Rivers State”,
Concerning the FIRS’ continues threats that taxpayers in the state must keep paying their taxes to it, Wike has threatened to shut down FIRS’ offices in the state should the “bullying” continue, calling for an end to the injustice in the country.
“Rivers State generated N15bn in June 2021 but got N4.7bn while Kano produced N2.8bn in June but Kano also got N2.8bn. Sometimes you don’t want to believe these things exist”.
“I cannot continue to beg the federal government for what belongs to our state.
“People say that let heaven not fall, but sometimes I believe that heaven should come down so that everybody will rest! When we do the right thing, heaven is at peace. So, the right thing must be done at all times,” he said.
This is the status quo ante as regards the tax war raging in Nigeria today! All well-meaning Nigerians can now see that the FIRS’ almighty VAT Act – on which they legalistically stand – is unconstitutional and nothing more than a lame attempt by a drowning man to grab unto straw in the hope of saving his life.
But the honorable thing to do here, is for the FIRS to just throw in the towel like a gentleman, so as not to appear like the virus which is responsible for the corruption cancer in the system! How long will they bury their heads in the sand of lies and deceptions, like the proverbial Ostrich running away from reality?
Will the FIRS just sheath the sword and call a truce already?