Southern Governors’Decision: Nigeria’s Raging VAT Controversy.

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Gavel using for ruling in the court

Nigeria’s Southern Governors have taken a resolute stand on collecting Value Added Tax, VAT. Their position is that state governments should collect taxes in their respective areas of jurisdiction. Before now, VAT collection was the exclusive preserve of the Federal Inland Revenue Service (FIRS), a Federal Government agency.

The decision was firmly taken at the bi-monthly meeting of the seventeen state governors at Enugu on September 16 2021. The September meeting decision comes on a court ruling by Justice Stephen Pam of the Federal High Court in Port Harcourt. On August 9, 2020, Justice Pam ruled that “it was the constitutionally role of state governments to collect VAT and not FIRS”.

The Justice Stephen Daylong Pam ruling has since generated a considerable controversy triggering series of court injunctions to date. In the order, the Honourable Justice interpreted the constitution to say “that since the collection of VAT is not in the exclusive legislative list of the extant 1999 constitution, it remains the duty and legal right of states to legislate on and enforce its collection within their jurisdiction”.

Hon. Justice Stephen Daylop Pam gave the verdict that VAT is not in the Legislative Exclusive List

The Exclusive Legislative List.

It is noteworthy that the exclusive list is a list of projects and issues only the Federal government can make laws on. In the Federal system of government, there are three lists for effective and accountable governance. They are the exclusive, the concurrent and the residual. The exclusive list is for the central government alone and involves security, currency and international relations. There is another spelt out area, and VAT is not on that list.

The Port Harcourt ruling was clear and specific: the Federal Inland Revenue Service (FIRS) had no constitutional backing for collecting VAT in Rivers State. The verdict, therefore, gave Rivers State government power to do so. Governor Nyesom Wike, one of the southern governors, has been in court over the VAT issue since December 2020.

FIRS Goes To Court of Appeal.

The Federal Inland Revenue Service, dissatisfied with the trial court’s verdict, subsequently approached the Court of Appeal. It prayed the Court of Appeal to stay execution of the decision. A three-member panel of the appellate court has ruled on the case. In its ruling on the application, the appellate court ordered that the parties “maintain status quo ante bellum”. In other words, the verdict restrained the Rivers State government from going ahead with the collection of VAT pending when the appellate court will hear the suit.

Justice Haruna Tsammani, who delivered the ruling, urged all parties to submit to its jurisdiction since the matter was before the appellate court. Tsammani’s second point was that the Lagos State government had asked to join the suit against the FIRS. The lawsuit is fixed for September.

Lagos State Government Signs VAT Bill Into Law.

As the VAT controversy raged between the Rivers State government and the Abuja Appeal Court, Lagos State Governor Babajide Sanwo-Olu, added his dimension. On September 10, 2021, Governor Babajide Sanwo-Olu signed into law “the bill for a law to impose and charge Value Added Tax VAT on certain goods and services”. Lagos State became the second state in the Nigerian Federation to sign such a bill into law. Rivers State was the first to do so.

Therefore, the Lagos State government went ahead to ask to join Rivers State government in the Abuja Appeal Court suit filed by the Federal Inland Revenue Service (FIRS) against Rivers State. However, it is not clear if other states intend to follow suit by enacting their laws. Meanwhile, the controversy is gathering momentum nationwide.

Governor Wike Heads For The Supreme Court.

Governor Nyesom Wike led the government of Rivers State, in disagreement with the Justice Tsammani ruling, took the issue a little further. On September 14 2021, the Rivers State government asked the Supreme Court to nullify the judgment of the Appeal Court in Abuja.

Nyeson Wike: Rivers State Governor

The Rivers State appeal predicated on the lower court ruling in Abuja that Lagos State should be allowed to join in the suit before the hearing is erroneous. Beyond that, the Rivers State counsel Mr Emmanuel Ukala, SAN, has argued that the order for maintaining status quo antebellum came as stillbirth. The order, he insists, came after the Rivers State House of Assembly passed its VAT law and was duly signed into law by Governor Wike on August 29, 2021.

South-south governours rising from a stakeholders’ meeting in Port Harcourt on October 5, 2021, declared support for states collection of VAT and asked to be joined in the suit currently before the Supreme Court. On September 30, the Oyo State government had applied to the Supreme Court seeking to join Rivers State government in the VAT suit against the Federal Government. Accordingly, Oyo State joined the suit as an interested party.

Northern Governors Join Federal Government in VAT Suit.

The Northern Governors Forum, on its part, convened a meeting on September 21, 2021. One of the aims of convening the meeting was to deliberate on the VAT controversy. In their communique at the end of the session, they resolved to adopt the position of the Minister for Justice and Attorney General of the Federation, Abubakar Malami, SAN.

Earlier in the week, Malami had in an interview with Channels Television stated that “As you rightly know, the issue of the Value Added Tax is an issue on the exclusive list. And the implication of being on the exclusive list matter is that only the National Assembly can legislate on it….” He went further to say that no national legislation has conferred power on any state to collect VAT.

Malami’s claims were faulted by Chief Mike Ozekhome, SAN, and Ifedayo Adedipe, SAN. According to Chief Mike Ozekhome, “He (Malami) is dead wrong. There is nowhere VAT is reflected as a matter within the exclusive or concurrent list in the constitution of Nigeria….it is residual and is strictly within the purview of state government in our federal set-up”. On his part, Adedipe warned that “VAT is a serious constitutional issue that should not be politicized”. He asked, “Is this in the 1999 constitution or a new one? Which number or section…. It is not enough to say it”.

VAT and The North/South Governors’ Rift.

For the first time, VAT has created a rift between governors from the northern and southern parts of Nigeria. The cleavage is both apparent and actual for apparent reasons. The south has never appeared monolithic over national issues before now (thanks to the southern governors’ meetings since May). As a result, Rivers and Lagos state governments have gone to the Supreme Court to seek equitable sharing of VAT.

They cite the colossal VAT figures generated from their states last year, which stood at 429 billion and 90 billion naira, respectively. In return, Lagos State got 139 billion naira and Rivers State 46.2 billion naira. On the contrary, Zamfara State generated 456 million naira and received 35 billion naira. They submit justifiably, of course, the argument that what individual states receive should be commensurate with what they generate.

Many financial experts contend that the Federal government lacks a viable formula for sharing VAT among the states. The southern governours hold firmly to this view and seek redress. Southern Governors further argue that resources from the south virtually sustain the north. According to Kalu Idika Kalu, the Federal Minister of Finance who introduced VAT during the Abacha regime, “a tax system is most equitable where the benefits accrue to where the burden is high, meaning those who are paying the most should benefit most”.

Idika Kalu, the World Bank expert who also introduced VAT in South Korea before coming to do the same in Nigeria, pointed out that, “at the time of introduction, the question of who collects VAT and how it would be distributed was not our priority”.
Incidentally, the 1999 constitution did not also pay attention to the distribution of VAT among the component states of the federation. So that is how we got to where we are on the issue.

The Federal Government needs to reaffirm its commitment to structural, fiscal federalism as a first step towards addressing issues of this magnitude. Then and only then will wranglings of this nature cease to rock the foundation of the country.

What Is VAT?

VAT means Value Added Tax. It is a chain tax. VAT is a “consumption tax that is levied on a product repeatedly at every point of sale at which value has been added”. VAT is imposed on a product from the point of manufacture to the final consumer. In other words, tax is added at every point of exchange, beginning from the raw material producer to the dealer and then to the factory. The chain continues from the factory to the retailer and finally to the consumer. The ultimate or last consumer carries the burden of paying the VAT. However, at each point or stage of production, every buyer before the final consumer benefits from the proceeds through reimbursement.

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My interest and love for blogging in the area of political and economic developments were cultivated during my days at Government College Ughelli. We had a set of very committed and dedicated teachers from the UK, India, Pakistan and Sri Lanka. There were two American Peace Corps members along with a handful of Africans. In April 1970 we watched a documentary on John F Kennedy. That documentary inspired me greatly. The following day I visited the College library for more information. I went through a large stack of The Readers Digest. I also stumbled across another international journal, The English Listener. Upon graduation from college and while at the University of Ibadan, l read American Time Newsweek magazines regularly. My bias was for International Relations. This background has proved an invaluable asset to me in my years of teaching and contributing articles to media organizations as a freelance writer and encouraged me to set up a blog: https://gblobalinquest.com

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