The Federal Inland Revenue Service (FIRS) had insisted that the collection of Value Added Tax (VAT) will not work at the state or local government levels and the service will retain the legitimate autonomy to administer VAT despite the court ruling in Rivers state.
The service also informed that it has appealed to the appellate court to review the judgement by the Federal High Court sitting in Port Harcourt.
It would be recalled that the Federal High Court sitting in Port Harcourt in its judgment last month held that the Rivers State Government had the powers to collect VAT within its territory.
Mathew Gbonjubola, Group lead, special tax operation, FIRS, while addressing newsmen in Abuja on Wednesday said, “FIRS has approached the appellate court to review the judgement at the lower court of the Federal Court in Rivers.
“I can assure you that FIRS has filed an appeal and it is in process; that is why we are not going to speak on certain issues.”
On why VAT will not work at the state level, Gbonjubola explained that the mechanism involved in collecting VAT makes it impossible to be administered at the sub-national level. According to him, doing so will lead to business being short-changed, citizens paying double VAT, and create confusion.
Read also: Ogun may join forces with Lagos, Rivers in VAT collection
He explained that VAT is practiced on an input-output basis which can only work at the national level.
“VAT works only at a national level, it cannot work at the sub-national level. There is no country in the world where VAT works at the sub-national level. This is because it depends on the input-output mechanism” he said.
“Assuming a business person bought an item in Osun state and paid VAT in the state and then took the goods to Sokoto to sell. When selling in Sokoto, he will charge VAT on his consumers, so by the operation of the input-output mechanism, this business person will deduct the input tax paid in Osun state from the output charged in Sokoto state”, he explained.
“But, because there is a single tax authority handling VAT, it is the same authority that received in Osun that will receive the additional VAT payable in Sokoto state, it is easy to work out the input-output mechanism and there is no issue of the business person being short-changed or the consumer having to pay VAT more than once.”
Gbonjubola also noted that VAT on imported items is collected at ports of entry, but said no single state government controls any port; and therefore makes it easier for FIRS, as a federal government institution, to administer VAT at the ports.
Gbonjubola further pointed out that VAT is administered on behalf of the federation and not on behalf of the federal government.
“By that, I mean that VAT is administered on behalf of the three tiers of government we have in Nigeria; the 774 LGAs, 36 states, and the FCT. The revenue arising from VAT is shared based on the extant provisions. Currently, 35 percent goes to the local government, 50 percent goes to the state while only 15 percent goes to the federal government”, he said.
He also pointed out that VAT revenue is not paid into the federation account at inception, but goes into a VAT-owned account. “It is only after the sharing and allocation that the Federal government’s share goes to the federation account ” Gbonjubola explained.
He further disclosed that after Lagos state, the federal capital territory generates the highest VAT because a substantial proportion of the total VAT collected comes from the contract awarded to ministries, departments, and agencies of government (MDAs).
“At the end of the day, notwithstanding these diverse sources, VAT revenue is still shared.”
Speaking on the proposed social media tax bill at the national assembly, Gbonjubola said FIRS is not aware of such a bill and is not sponsoring it.
“I can tell you very clearly that this is not from us. If there is any such bill at the national assembly, FIRS is not a sponsor and not a party to that, I can confirm that”, he said.
Also speaking, Chiaka Ben-Obi, group lead -digital and innovation support, FIRS informed that the service was able to generate N1trn from VAT in the first six months of 2021 because the service was leveraging on technology.
She said the FIRS deployed a technology known as TaxPro Max which made the whole process efficient.
