Lagos, Ogun lead South-West race in VAT tussle

Lagos and Ogun, two states from the South- West, have joined Rivers State in the SouthSouth to give the Federal Inland Revenue (FIRS) and by extension the Federal Government a piece of their minds on the raging controversy over who collects the Value Added Tax (VAT). While Lagos and Rivers states contribute over 70 per cent of the VAT collectibles in the country, Ogun State comes second in VAT collections in the SouthWest after Lagos. VAT is a consumption tax paid when goods are purchased and services are rendered. It is charged at a rate of 7.5 per cent. In 2020, Nigeria generated N1.53 trillion in VAT, about 10 percent of the country’s entire revenue that year. Most states depend on funding from the Federal Allocation Account Committee (FAAC) due to their poor Internally Generated Revenue (IGR).

The law was introduced via Decree No.102 of 1993. It replaced sales tax operated under Decree No.7 of 1986, which was administered by states and the Federal Capital Territory (FCT). Until now, the FIRS had the responsibility of collecting VAT on behalf of the 36 states and the FCT.

Section 40 of the VAT Act requires that the VAT pool be shared 15 per cent to the FG; 50 per cent to states; and 35 per cent to LGs (net of four per cent cost of collection by the FIRS). Twenty per cent of the pool is shared based on derivation.

Of course, the root of the current tussle between states and Federal Government started from the initiative of Rivers State which approach the court and subsequently secured judgement on August 11 from a Federal High Court in Port Harcourt, which held that VAT collection was for the states and not for the Federal Government through the FIRS. Although the FIRS applied to the court for a stay of execution, Justice Stephen Pam rejected the application, saying granting it would negate the principle of equity.

On the back of the favourable judgment, the Rivers State House of Assembly passed the Rivers State Value Added Tax Law 2021 and Wike assented to the bill. Following suit, Lagos, Nigeria’s wealthiest state and economic capital, which contributes 55 percent of the VAT, enacted a bill for a law to impose and charge VAT on certain goods and services’.

The bill passed through first and second readings on September 7 and was then handed to the House committee on finance for public hearing. While deliberating on the bill during plenary, Mudashiru Obasa, the House Speaker, said it would further lead to an increase in the state’s revenue and infrastructural development “This is in line with fiscal federalism that we have been talking about,” he added.

Obasa also said when passed, the VAT law would help the state meet challenges in its various sectors. He also urged the state government to do everything legally possible, “to ensure the judgment of the Federal High Court was sustained even up to the Supreme Court.” The Speaker lamented a situation “where about N500 billion would be generated from the state while N300 billion was generated from other South-West states, but paltry amounts would be disbursed to Lagos state in return.” According to the bill, the tax which shall be charged and payable on the supply of all taxable goods and services other than goods and services listed in the schedule of the law shall be computed at the rate of six per cent on the value of goods and services as prescribed under sections 5 and 6 of the Law, except the goods and services listed under Part III of the Schedule which shall be taxed at zero rates.

Also, Section 5 of the bill provides that the value of taxable goods and services shall be determined in the following ways: (a) where the supply is for money consideration, its value shall be deemed to be an amount, which with the addition of the tax chargeable is equal to the consideration; (b) where the supply is for a consideration not consisting of money, the value of the supply shall be deemed to be its market value; and (c) where the supply of taxable goods and services is not the only matter to which consideration in money relates, the supply shall be deemed to be part of the consideration as is properly attributed to it.

On September 9, the House of Assembly transmitted a clean copy of the VAT Bill to Sanwo-Olu, through the acting Clerk of the House, Olalekan Onafeko. Promptly, Governor, Sanwo-Olu, 24 hours later, signed the state Value Added Tax Bill into law. The state Commissioner for Information and Strategy, Mr Gbenga Omotoso, in a statement, said the governor signed the bill after returning from an official trip.

On the same day, Lagos asked to be joined as a respondent alongside Rivers State in the appeal filed by the Federal Inland Revenue Service challenging the judgment of the Federal High Court, Port Harcourt which ruled that Rivers should commence VAT collection. Justice Haruna Tsammani of the Appeal Court had adjourned to September 16 to hear the application by Lagos and asked all parties to “maintain status quo” However, a member of the Lagos State House of Assembly, Setonji David, said the state would go ahead with the implementation of its assented VAT Law despite a stay of execution by the Appeal Court.

The lawmaker, who represents Badagry II Constituency in the House, said: “In Lagos State, we have always clamoured for true federalism. “This is consumption tax from the people of Lagos and it should be domiciled in Lagos and used for the people of Lagos.

There are so many hassles that have to do with federalism that we are practising.” He added: “We generate over 55 per cent of the VAT in Nigeria and we get a paltry sum of 10 per cent. Is that fair for a population of over 24 million? We are happy that the Riv-ers State Government went to court and the court was very clear that VAT was supposed to be a state affair.

We have no choice but to follow suit.” Pitching tent with its neigbhour on the tussle, the Ogun State House of Assembly proposed a bill on the Ogun State VAT Law, 2021, and it scaled first and second readings on the floor of the House awaiting public hearing, passage and assent by the Governor, Prince Dapo Abiodun.

Clerk of the Assembly, Mr Deji Adeyemo, read the bill for the first time during plenary session in Abeokuta, while the Majority Leader, Mr Yusuf Sherif, moved the motion for the second reading which was seconded by Mr Ganiyu Oyedeji. While opening debate on the bill, the Chairman, House Committee on Finance and Appropriation, Mr Olakunle Sobukanla, noted that the bill was an avenue for the state to generate more revenue for its development.

In his submission, Oyedeji explained that the collection of VAT would allow the state to generate more revenue and meet the needs of the people. On their part, Honourables Atinuke Bello, Sylvester Abiodun, Musefiu Lamidi and Yusuf Sheriff called for the speedy passage of the proposed bill, noting that it was a pointer to the fiscal restructuring, which had been an issue of national discourse. Other lawmaker who spoke supported the quick passage of the bill, said that it would boost the socio-economic development of the state.

They noted that the passage of the bill would be a financial restructuring and a form of redistribution of internally generated revenue. In his response, the Speaker of the House, Mr. Olakunle Oluomo, commended the lawmakers for the deliberation, adding that the VAT law was needed in the state for more economic development. The Speaker committed the bill to the House Committee on Finance and Appropriation for further legislative actions.

Clearly, the present standoff may have opened the restructuring debate through another door and the looming image of Lagos and Ogun states in the tussle should be commended. However, it may be too early to draw conclusion on where the pendulum would swing to as all eyes are on the judiciary.