With the upward review of the Value Added Tax, VAT rate by the Finance Act of 2019 and a record-breaking ₦4.178 trillion VAT generated by the Federal Inland Revenue Services within just 10 months in 2020, it became only a matter of time for tiers of government to contend for the collection rights of this fast-rising goldmine. The room for contending the collection of VAT is fueled by the open role created by current legal provisions.

To validate the massive potentials of VAT, recall that recently the National Bureau of Statistics had released that for just Q2, 2021, returns from VAT rose to ₦512.25bn away from the ₦495.39bn generated in Q1 for the same year and ₦327.20bn generated in Q2 2020 representing 3.20 percent increase Quarter-on-Quarter and 56.56 percent increase Year-on-Year.

In a detailed breakdown of the stated sum, ₦187.43bn constituted Non-Import VAT locally while ₦207.69bn was generated as Non-Import VAT for foreign. Meanwhile, the balance of ₦117.13bn was generated from the Nigerian Customs Service Import VAT.

Furthermore, the report also noted that by sector analysis,  the manufacturing sector generated the highest amount of VAT with ₦44.89bn, followed by Professional Services generating ₦29.30bn, Commercial and Trading generating ₦21.96bn. Textile and Garment industry generated the least and closely followed by Pioneering and Pharmaceutical, Soaps and Toiletries with ₦77.74m, ₦169m and ₦188.71m generated respectively.

It is important to note that the Finance Act of 2019 which reviewed upwardly VAT collection has also helped in the recent boom of VAT. VAT generated in the second quarter of 2021 rose to ₦512.25bn, from ₦495.39bn generated in Q1.

The legal uprising

In the foregone weeks, incidents arising from the administration of the Value Added Tax have resurrected legal irregularities that have refused to remain buried. The volume of these grey areas of the law became deafening as court rulings made the highlights of the tax administration, especially in the immediate past week.

A key shake in the administration was heralded by the ruling of a Federal High Court sitting in Port Harcourt, barring the Federal Inland Revenue Services, FIRS from collecting the Valued Added Tax, VAT and Personal Income Tax, PIT, empowering the Rivers State Government to see to the collection instead of the federal agency.  

The Court presided over by Justice Stephen Dalyop Pam also issued an order of perpetual injunction restraining the Federal Inland Revenue Service and the Attorney-General of the Federation, both first and second defendants in the suit, from collecting, demanding, threatening, and intimidating residents of Rivers State to pay to FIRS, personnel income tax, and VAT.

Taxmobile.online gathered that the declaration came while delivering judgment in suit No. FHC/PH/CS/149/2020, filed by the Attorney-General for Rivers State (plaintiff), against the FIRS (first defendant) and the Attorney-General of the Federation (second defendant).

Stating that there was no constitutional basis for the FIRS to collect VAT, Withholding Tax, Education Tax, and Technology levy in Rivers State or any other state of the Federation, the court granted all the eleven reliefs sought by the Rivers State Government.

Further Judicial Perspective

According to the court’s interpretation, the constitutional powers and competence of the Federal Government were 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.

To reiterate the importance of the court ruling, the judge dismissed the preliminary objections filed by the defendants that the court lacked the jurisdiction to hear the suit and that the case should be transferred to the Court of Appeal for interpretation.

Professional takes

The events have afforded professionals in the sector to lend their professional take. Mr. Taiwo Oyedele, the Fiscal Policy Partner and Africa Tax Leader at PricewaterCoopers (PwC) voiced that if the judgment is enforced or upheld on appeal, it will apply to other states and not just River to State.

This means each state would administer VAT within their territory. By implication, FIRS will administer VAT within the FCT and non-import foreign VAT while the Nigeria Customs Service will continue to collect import VAT on international trade.

On the flip side, Mr. Olatunji Abdulrazaq, Founder Taxmobile.Online submitted that Collection of taxes is a matter for the concurrent legislative competence of both the National Assembly and the State House of Assembly. This provision in his narrative makes the Federal High Court legitimate to carry out the hearing.

In his submission, while calling for constitutional reform, he concluded that the 1999 Constitution also clothes the state high courts with original and general jurisdiction to hear all civil matters not expressly provided for by the Constitution or an Act of the National Assembly. These two similarities make it instructive to note that Value Added Tax is not specifically allocated to either the Federal Government or State Governments under the 1999 Constitution.

According to the tax expert, his submission is based on the Supreme Court’s decision in Attorney General Ogun State v Ayinke Aberuagba where both the Federal and State Governments can impose VAT on the supply of any goods and services within their respective sphere of influence.

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