By Joseph Chibueze, Abuja

But for the intervention of the Appeal Court which ordered the warring parties to maintain status quo, the Rivers and Lagos state governments would have by now be collecting value added tax (VAT) in their states.

However, that order by the court is only postponing the dooms day for

the Federal Inland Revenue Service (FIRS) which had earlier lost two court cases as it tries to maintain control over the collection of VAT across the country.

As at the time of filing this report more states including Benue, Akwa

Ibom, Ogun and Edo are already dusting their papers preparatory to

enacting their own value added tax laws.

It all started when the Rivers State government approached a Federal

High Court in Port Harcourt asking the court to determine if it was

constitutional for federal government through FIRS to be collecting

VAT in the state.

Based on the prayers of Rivers State, the presiding judge, Justice

Stephen Pam declared that the Federal Inland Revenue Service (FIRS)

“has no constitutional authority to enforce and administer taxes not

expressly stipulated under Items 58 and 59, Part I, Second Schedule to

the 1999 Constitution of the Federal Republic of Nigeria.”

Following that court decision, Rivers State House of Assembly passed a

bill to enact the State Value Added Tax (VAT) Law No. 4 of 2021. The

state governor, Mr. Nyesom Wike signed it into law on August 20, to

end the authority of the FIRS to administer, collect and enforce the

Value Added Tax Act, 2007 in Rivers State.

That singular act by the Rivers State Governor has also motivated

Lagos State government to enact and sign its own value added tax (VAT)

law.

The major argument is that there is gross injustice in the

distribution of VAT proceeds by the federal government.

According to Rivers State Governor, Nyesom Wike, in the month of June

2021, over N15 billion was collected as VAT from the state, but its

share of it was a little over N4 billion whereas a state like Kano

which within the same month generated N2.8 billion, got exactly the

same amount as its own share of VAT proceeds.

On several occasions, people have argued that it was wrong for states

that prohibit the consumption of some goods to share in the VAT

revenue accruing from the same goods they have prohibited.

On August 24, 1993, precisely three days to the end of his regime, the

Federal Military Government under Gen. Ibrahim Babangida (rtd)

promulgated the Value Added Tax Decree No. 102 of 1993. But the decree

did not become effective until December 1, 1993 under the late Gen. Sani Abacha.

At the time of its promulgation, the Babangida regime recognised that the VAT enforcement authority lied solely with the federating units.

But the regime, by fiat, designated the FIRS as the enforcement authority on the grounds that the federating units lacked the capacity to collect VAT within their defined jurisdictions.

With the advent of the 1999 Constitution, consistent with Section 315 of the Constitution, all the decrees, which fall directly within the purview of the federal government, became the Acts of the National Assembly.

In specific terms, the section states: “Subject to the provisions of this Constitution, an existing law shall have effect with such modifications as may be necessary to bring it into conformity with the provisions of this Constitution and shall be deemed to be an Act of the National Assembly to the extent that it is a law with respect to any matter on which the National Assembly is empowered by this Constitution to make laws …”

On this ground, the Value Added Tax Decree No. 102 of 1993 became Value Added Tax Act, 1993, retaining five per cent as the chargeable rate in 1996 under the Federal Military Government.

Under the Obasanjo administration, however, the VAT Act, 1993 was amended twice, first in

2004 and also at the twilight of the administration in 2007.

Like Babangida, Obasanjo assented to the VAT Act, 2007 about four days to the expiration of his administration. Under the VAT Act, 2007, the chargeable rate of VAT was increased from five per cent to 10 per cent.

 However, the amendment stoked public disapproval, which compelled the late President Umaru Musa Yar’Adua’s administration to reverse it to five per cent on September 25, 2007.

The Federal High Court in Port Harcourt was to determine whether the Value Added Tax Decree No. 102 of 1993 be an Act of National Assembly?

Or should the National Assembly legislate on value added tax or consumption related taxes with emphasis on which level of government has the power to collect VAT within the ambit of the constitution.

Section 4 of the 1999 Constitution has defined the legislative powers of the National Assembly and States’ Houses of Assembly. Under Part I,

Second Schedule, the constitution recognises 68 items, on which the National Assembly can make laws for the purpose of good governance at the federal level.

Specifically, Items 58 and 59 on the Second Schedule further defined the taxing authority of the federal government. As these provisions suggest, the National Assembly cannot exercise its powers beyond legislating on matters on relating to stamp duties as shown on Item 58; taxation of incomes, profits and capital gains as indicated on

Item 59.

Also, under Part II, Second Schedule, the 1999 Constitution lists 30 items on which the state Houses of Assembly can legislate. Likewise, the National Assembly can as well legislate on any item or matter

under the Concurrent Legislative List. It is on these grounds that the

Federal High Court declared that there “is no constitutional provision

which grants the National Assembly power to make the VAT Act.”

Beyond this issue of who collects VAT and who does not, is the fact

that Nigeria is gradually inching towards true federalism, a state

many Nigerians have been yearning for.

The fact remains that time has come when politicians and particularly,

state governments should begin to stand up and challenge legislations

they do not feel comfortable with.

The debate over restructuring of the Nigerian federation to make it a

truly federal state has been persisted since the return to democratic

rule in 1999. The arguments had culminated in three different attempts

to restructure the country’s federal structure.

In 2005, Obasanjo convened the National Political Reforms Conference

in response to popular demands then. Also, former President Goodluck

Jonathan convoked National Conference in 2014 under the late Justice

Idris Kutigi to address imbalance and injustice that characterised the

federal system.

In keeping with its campaign promises, the ruling All Progressives

Congress (APC), in 2018, set up a Committee on True Federalism to

devolve more powers to the federating units. The committee was chaired

by the Kaduna State Governor, Nasir el-Rufai.

None of these attempts made any significant change in the country’s

governance structure. Since 1999 some states of the federation,

especially Lagos State and recently Rivers State, have successfully

challenged the constitutional powers of the federal government in

areas of conflicting interest.

With the current VAT imbroglio, and the recent court action instituted

by the 36 states of the federation through their Attorneys-General

asking the Supreme Court to compel the federal government to remit

funds generated from stamp duties into state accounts, it appears the

states are waking up to their responsibilities.

Commenting on the latest development in the match towards true

federalism, an economist and former Director General Lagos Chamber of

Commerce and Industry, Dr. Muda Yusuf, said all arms and levels of

government have a responsibility to uphold the constitution.

“This is what they have all sworn to do,” he said. “It is interesting

that the sub nationals are getting bolder and more assertive.  We are

beginning to see some flavour of federalism in governance.  It is a

good development.”

The Yoruba socio-cultural group, Afenifere, in a statement by its

National Publicity Secretary, Jare Ajayi, noted that the rulings by

Justice Stephen Dalyop Pam of the Federal High Court, Port Harcourt on

August 9 and on September 6, have earned the judiciary in Nigeria

respect as an institution that is not only capable of ensuring justice

but is actually working on deepening federalism in the country.

The group urged state governments to use the opportunity provided by

the landmark judgments on VAT to explore other areas that the

Constitution empowered them to assert themselves as federalists.

“In other words, they should step up actions that will liberate the

states from the stronghold of the federal government that has turned

Nigeria into a Unitary State – in contradistinction to the federal

spirit prescribes by the Constitution,” the statement said.

“They should rest assured of Afenifere support as they give vent to

power devolution and entrenchment of true federalism in Nigeria.

“Areas in which the states need to assert themselves include

agriculture, health, education, electricity, physical planning, title

registration, registration and production of vehicle number plates and

casino licensing etc as Lagos State Government did in the past.

For President of the Institute of Chartered Secretaries and

Administrators of Nigeria (ICSAN), Gbenga Owokalade, “It is beyond the

fact of winning a court case. It is a function of what is the import

of that judgement on the Nigerian nation. Several times people have

talked about physical federalism and all of those things and there

have been arguments here and there but the judgement is speaking to

the heart of some of these issues. Why will you collect resources from

an area and that area does not enjoy the bulk of that thing and then

you share out? The states need to sustain the push towards true

federalism.”