You need to active Javascript on your
BusinessDay
Nigeria's leading finance and market intelligence news report.

VAT, anti-open grazing laws push Nigeria closer to fiscal federalism

…Nigerians hail Rivers, Lagos’ bold steps … Appeal Court says ‘hold on’ until… …Only true federal system can guarantee justice – Adebanjo

Gradually but steadily; silently but effectively, a revolution is taking place in Nigeria that will ultimately yield a saner society that will stand and thrive on equity, justice and fair-play in the way the people live and relate with one another.

A lot of anomalies have been forced down the throat of Nigerians with arrogance and impunity and, with the tax war now raging between the states and the Federal Government, it does seem that the people have had their fill and therefore, cannot take it anymore.

The Federal Government has, all along, been too overbearing in playing its big brother role such that, with the ethnic and religious sentiments that lace every consideration in the country, the government has taken its role to a very ridiculous level, making itself an irritant in the process.

The tax war, which started as a melodrama with Rivers and Lagos State governments contesting right to VAT collection with the Federal Government has taken a new twist as 36 states of the federation, through their Attorneys-General, have dragged the Federal Government to the Supreme Court over alleged failure to remit funds generated from stamp duties into state accounts.

Political pundits say that the tax war, the anti-open grazing bills and all other forms of agitations that the country has seen in recent times are only symptoms of a new consciousness that is evolving, intent on letting the government and its handlers know that silence does not always mean ignorance or weakness.

Following recent actions of some governors, especially on unresolved fiscal issues that have retarded the country’s economic growth, it seems other tiers of government are waking up, challenging the status quo and tasking government on true federalism.

Of interest are ensuing debates on the issue across the country, as many are supporting states to square-up with the Federal Government on contentious issues, as the constitution empowers them rather than the compromise that often weakens them.

Read Also: VAT: Expected winners, losers if sharing formula changes

Until recently, no state had mustered the courage to challenge the Federal Government-empowered Federal Inland Revenue Service (FIRS) on collecting revenue even when they are due and constitutional for the states to do so.

Thanks to Nyesom Wike, the Rivers State governor, for belling the cat. The governor recently signed into law the bill that authorizes the state to collect Value Added Tax (VAT), hitherto collected by the FIRS.

Further authenticating the bill is a ruling by a Federal High Court in Port Harcourt that states, and not the Federal Inland Revenue Service (FIRS), should be collecting Value Added Tax (VAT) and Personal Income Tax.

This is not the first time the court is ruling in favour of states, especially fiscal matters. It would be recalled that on July 19, 2013, the Supreme Court ruled in favour of the Lagos State government on the right to make laws on tourism, specifically where the National Assembly had already legislated on the same issue through the NTDC Act.

With that ruling, the debate on the constitutionality of the Lagos State Hotel Licensing Law 2003 (and its amendment) and the Hotel Occupancy and Restaurant Consumption Law 2009 enacted by Lagos State were finally laid to rest as the state went ahead with the enforcement of its laws on hotels, consumption tax, among others.

The Lagos State House of Assembly, in what seems like borrowing a leaf from Rivers, last Thursday passed into law the VAT and anti-open grazing bills.

Read Also: Anti-open grazing: Lagos, Ogun, Edo, Anambra, Osun delaying law

In an apparent speed of lightening the following day, Friday, Governor Babajide Sanwo-Olu signed the bill into law.

But while the VAT case is a huge victory for the states and fiscal liberation, many fear that the Federal Government may likely challenge the Federal High Court’s ruling up to the Supreme Court.

“This is one victory all the states should celebrate because it is moving Nigeria away from unnecessary control by the Federal Government. State should be allowed fiscal autonomy as guaranteed by the constitution and this is happening in our time,” Chijioke Umelahi, a former Abia State lawmaker, enthused.

According to the lawmaker, the disparity in the revenue sharing formula is already hurting states and denying them resources for development as much of the resources are domiciled with the Federal Government.

For Tanko Usman, an Abuja-based tax expert, the High Court ruling in favour of the states is worth celebrating because the Federal Government has been collecting so much revenue and even in areas where states are constitutionally empowered to do so.

“With the ruling, every state can now improve its revenue collection. Those who argue that the states will exploit and squander the new revenue source, should also ask what development the Federal Government has supported with the billions it collected from VAT all these years”.

Usman insisted that the ruling is a welcome development; a signal that free meals for the Federal Government are over and time allows states to exercise all their constitutional rights for even development across the country.

‘It’s an opportunity to grow our business’

Magnus Onuba, a petroleum products marketer in Port Harcourt, expressed joy over the court ruling, noting that it will address the issue of multiple taxation and harassment by federal and state tax agents.

“At least, we know that it is only the state we can pay to. This is a tax relief for us and an opportunity to grow our businesses”, he said.

Jimoh Otunla, a Lagos hotelier, is happy as well, noting that the ruling is going to take off a huge burden from hoteliers.

“Guests complain that Lagos hotels are expensive because of the over 20 taxes and levies we pay to the Federal, state and local governments. With the state collecting the VAT, it will be easier for us to handle than federal and no more double taxation,” Otunla said.

It has set path for restructuring

With the VAT law, Tony Abolo, a development economist, said it has set the path for restructuring “which will be interpreted as fiscal federalism which will have an effect on other devolution in the country if it is finally upheld at the Supreme Court level.

According to him, it has also opened the door for restructuring and the possibility of resolving certain inequities in the system.

“It is an interpretation of the law because you know, in Nigeria, we don’t do judicial activism. We take laws that are made or take the constitution as it is and begin to complain or agitate without going into the substance of the matter. So, the Rivers State opened their eyes and decided to make certain parts of the constitution justiciable and therefore, led to this VAT decision.

“This is the reason why Lagos has grown its IGR using law activism to be able to create avenues for itself and every state ought to open its eyes. But in Edo, there is no engagement with the people in this government. Now, the issue of VAT came, and instead of the state government to find a way around it, make money and let the economy of the state run, they seem not to be interested,” Abolo added.

Ayo Adebanjo, leader of the pan-Yoruba socio-cultural organisation, Afenifere, said the development was what Nigerians had been clamouring for.

“All we are asking now is let what is desirable be done. Nigeria is a federal state; it was clear injustice for the Federal Government to be collecting VAT. Look at America; the richest state gets most of its money from same source. For history, the issue was settled in 1954, before Independence; it was the military that brought us back to this system in 1964 and we are saying let go back,” Adebanjo said.

According to him, “It should be the state that should collect VAT. Back then, Awolowo told Sardauna, your people don’t drink, but you are collecting the proceeds that come from them, what do you want me to do with my people who drink? Look at the clear injustice in Rivers State; a large fraction of the money generated from VAT is not given to them; even Lagos and the rest; that should not be allowed in a federal system.

“I have always said it that if Nigeria does not practise true federal system, we would not get justice. The military destroyed the system, turning all sort of laws that would make the country grow like its peers upside down. And that is why we are saying that we must restructure the country, which they have refused because they want to continue with this injustice.

“Nobody wants to be cheated forever with impunity, all these things were spelt out in the Constitution, the roles of the state, federal and their powers.”

Monday Ubani, a former second vice president of the Nigerian Bar Association (NBA), said: “I am in support of the states collecting VAT; that is what it should be in a true federalism; I mean federal state. It is what we have been talking about and as you can see, it was clear injustice for the Federal Government to be doing that in the first place.”

Eddy Olafeso, a former People’s Democratic Party (PDP) national vice chairman South West, said the development “is an eye opener.”

Olafeso said: “You cannot be denied freedom for ever. For the Federal Government, it is an eye opener; they would soon realise they are alone on this matter. I mean things would change more. People have been clamouring for federalism and they are not talking out of point because it is what it should be. I expect other states to follow suit in Nigeria and you can see that Lagos State has not only passed a bill but has also gone ahead to sign the bill into law. You cannot sit somewhere and expect others to generate money and share with you. It has to stop. Federalism is the way forward, and it is coming like this gradually; of course, they may not want it for obvious reasons.”

Moreover, the signing of the anti-open grazing by most states in the southern part of the country is also further exercising of the states’ constitutional powers.

Observers think that the state governors who have signed the anti-open grazing into law are listening to the yearnings of their people who have lost innocent lives, farm crops, lands, houses and money to the several attacks by herdsmen.

“The state lawmakers made the law, the governor signed to authenticate it, hence any defaulter will be prosecuted because not doing so undermines the legitimacy of the House of Assembly that made the law and most importantly, the authority of the state. I see the law reducing the attacks and activities of gun-wielding herders,” Umelahi said.

But Tanko Usman thinks that it is not signing the anti-open grazing law, but the enforcement as some herders will dear the states, knowing that they have people in Aso Rock.

“I hope the states are setting up a taskforce to enforce the new law and not just signing the bill into law,” he said.

Toeing Usman’s line, Umelahi feared that some state governors who are seeking attention from Aso Rock may likely not sign the bill into law, giving the herders access to places that are ‘pro-open grazing’, which should not be.

“Despite the outcry by most southern states, the President still signed the PIB bill into law; so why will someone stop southern states if they think there is need for laws to protect their people, their land and economy?” Umelahi said.

Some observers have also urged President Muhammadu Buhari to prevail on Miyetti Allah to enable them desist from making provoking comments and inciting their members against innocent citizens.

Ahmed Ajayi, a farmer, said that the press conference held recently by the Miyetti Allah against the Southern States that have decided to outlaw open grazing, was in bad faith.

“Imagine a group whose members have been causing havoc across the country, having the temerity to attack states that are seeking ways to protect their people. They were saying all manner of things against Governor Samuel Ortom. Their comments were infuriating, saying has the ban on open grazing in Benue checked the killings? That was being too arrogant. I am sure that with the developments in Rivers, Lagos and other states, we will begin to experience some measure of sanity in society,” Ajayi said.

Appeal Court stops Rivers, Lagos until…

The Court of Appeal in Abuja has halted the Rivers State government from collecting Value Added Taxes VAT until all legal disputes relating to the matter are resolved.

The court ordered that the judgment of the state high court from which the state drew authorities to collect the tax be implemented.

Justice Haruna Simon Tsammani who issued the order in Abuja on Friday also directed that the law passed by Rivers State House of Assembly and assented to by Governor Nyesom Ezenwo Wike must not be implemented.

The appellate court held that since parties have submitted themselves to the authorities of the court for adjudication of the matter, they must not do anything that will destroy the subject matter of the appeal.

In specific terms, Justice Tsammani granted status quo ante in favour of the Federal Inland Revenue Services and against the respondents.

The matter has been slated for September 16 for a hearing of the motion for joinder by Lagos State.

FIRS, in an appeal marked CA/PH/282/2021, is praying the court to set aside the judgment of a Rivers State High Court which granted powers to the state to collect Value Added Tax, VAT.

The tax collection agency is also asking the appellate court to stay the execution of Rivers’ judgment.

Whatsapp mobile

Get real time updates directly on you device, subscribe now.