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VAT war: Rivers to jump from N448bn to N610bn per year

· What really happened · How Rivers IGR profile will change · A conspiracy of the states? · But troubles seem to lie ahead

For winning the value Added Tax (VAT) war, Rivers State is to jump for annual gross revenue of N448billion to N610billion.

The VAT case has gone to Appeal Court but Rivers State has won a vital leg, which is stay-of-execution as the court ruled that the judgment of the High Court remains without staying the execution while the substantive case goes on.

By this, from end of September 2021, the state government will begin to be the one to collect VAT from businesses.

The case had challenged the powers of the Federal Inland Revenue Service (FIRS) to collect VAT and some other levies such as Personal Income Tax, Withholding Tax, Education Tax, and Technology Levy.

The justice, Stephen Dalyop Pam, shocked the nation when he ruled with an order of perpetual injunction restraining the FIRS and the Attorney General of the federation from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, personal income tax and Value Added Tax.

Pam made the order while delivering judgment in Suit No. FHC/PH/CS/149/2020, filed by the Attorney General for Rivers State (plaintiff), against the Federal Inland Revenue Service (FIRS, first defendant) and the Attorney General of the Federation (second defendant).

Read Also: Rivers set to collect September VAT – Wike

The Court, which granted all the eleven reliefs sought by the Rivers State Government, stated that there is no constitutional basis for the FIRS to demand for and collect VAT, Withholding Tax, Education Tax and Technology Levy in Rivers State or any other State of the Federation, being that the constitutional powers and competence of the Federal Government is limited to taxation of incomes, profits and capital gains which do 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.

The judge dismissed the preliminary objections filed by the defendants that the Court lacks jurisdiction to hear the suit and that the case should be transferred to Court of Appeal for interpretation.

Pam, who also dismissed objection raised by the defendants that the National Assembly ought to have been made a party in the suit, declared that the issues of taxes raised by the State government are issues of law that the court is constitutionally empowered to entertain.

He declared that after a diligent review of the issues raised by both the plaintiff and the defendants, the plaintiff has proven beyond doubt that it is entitled to all the eleven reliefs it sought in the suit.

The court agreed with the Rivers State Government that it is the State and not FIRS that is constitutionally entitled to impose taxes enforceable or collectable in its territory of the nature of consumption or sales tax, VAT, education and other taxes or levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended.

Also, the court declared that the defendants are not constitutionally entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on the residents of Rivers State and indeed any state of the federation.

Among the reliefs sought by the Rivers State Government, is a declaration that the constitutional power of the Federal Government to impose taxes and duties is only limited to the items listed in items 58 and 59 of Part 1 of the second schedule of the 1999 constitution as amended.

The Rivers State immediately set in motion the structures to begin immediate collection of VAT. The FIRS went on appeal and demanded for a stay-of-execution. On Tuesday, September 8, 2021, the Appal Court rejected the stay-of-execution plea. This sent wild jubilations in the state administration.

The governor summoned the business community and announced that the state would come asking for VAT by end of September. The governor went ahead to reveal how VAT was being shared in Nigeria.

He made lamentations: Rivers State in July 2021 got a mere N4.7bn from a collection of N15.1bn whereas Kano that collected N2.8bn got N2.8bn back as VAT. Lagos fetched N46bn but got N9.3bn back. He said most northern states destroy alcoholic drinks and shut down leisure centres and miss VAT only to double back and collect VAT realised from sin-spots in southern states.

How Rivers IGR profile will change

By this revelation, Rivers State now get average of N15bn from VAT every month and will not remit a kobo. This will be N180bn in the next one year instead of the N18bn it had expected for one year from paltry remittances from the FG.

This would add to the state’s N448bn expected in 2021 to now be N610bn by end of August 2022.

The state’s monthly IGR of N8.5bn estimated for 2021 will henceforth be N23bn per month. By this, Rivers State earn N276bn from IGR every year, which is enough to either pick up its entire N180bn recurrent expenditure per year or cover its entire capital budget of N268bn.

Rivers State had always wanted to meet at least 50 per cent of its annual expenditure through IGR. By this development, the state would now meet up to 65 per cent of this.

The most impact would be in paying salaries and overhead without waiting for federal allocation, or paying contractors without waiting for allocation, whichever it chooses.

Conspiracy of the states?

Sources said the governors had always known they were being shortchanged and it would require a court order to win it back. The problem was who to bell the cat without picking bullets. This was the stage when the one-time governor of Akwa Ibom State, Victor Attah, took the FG to court under Olusegun Obasanjo on OffShore revenue issue. He was believed to have been victimised a lot.

Nyesom Wike did not bat an eyelid. He was seen to be looking for such opportunity and made mince meat of it and won big.

Now, Lagos, which renders over N46bn every month to VAT purse and gets a mere N9bn has enacted its own VAT law, allocating 75 percent to the state and 25 percent to the local councils. Nothing for the FG, an indication of the huge revenue loss to the FG and states with little VAT grossing.

Other states are said to be warming up while some others are said to be afraid of doing so to avoid losing favour up north. This, coming same time with anti-open grazing laws in some states seems to mean one thing, that a major north-south divide has begun.

It also may mean that the failure of the FG in the past 22 years of the return of democracy to re-engineer Nigeria along true federalism may be a grave mistake. Sources say restructuring may be happening unplanned and this may be worse.

But troubles seem to lie ahead

Many fear that with violence heading south, and with apparent financial strangulation of the north on the way; that the north may react in desperate ways and this may usher in a big conflict between the two regions.

The sources said those making peaceful restructuring impossible may be making break-up or violent restructuring possible and faster.

Signs are everywhere that northern states are beginning to take stock of their advantages and strike lines. As more pressure piles on them, it is not certain the way they would strike back.

Others however, argue that signs from the north of not allowing power to return to the south as agreed may win support for southern revolt through capturing of economic structures.

The future looks uncertain, they say.

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