Legal Nigeria

VAT Collection: FIRS Appeals Federal Court’s Historic Judgement

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Ndubuisi Francis and James Emejo in Abuja

The Federal Inland Revenue Service (FIRS) has appealed against a judgement by a Federal High Court in Port Harcourt, the Rivers State capital, on the issue of who has the constitutional mandate to collect Value Added Tax (VAT).

In a decision seen widely to be of great historic importance, the court had last week ruled that Rivers State Government, not FIRS, should collect VAT and Personal Income Tax (PIT) in the state.

Data compiled by THISDAY shows that the federal government may lose over N1.5 trillion in annual revenue from consumption tax if other states decide to align with the judgement.

The court presided over by Justice Stephen Pam held that there was no constitutional basis for the FIRS to demand and collect VAT, Withholding Tax, Education Tax, and Technology Levy in Rivers or any other state of the federation. It maintained that the constitutional powers and competence of the federal government were limited to taxation of incomes, profits and capital gains, which did 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.

However, FIRS vowed to challenge the ruling.

In a statement by its Director, Communications and Liaison Department, Abdullahi Ismaila Ahmad, yesterday, the agency said it had appealed the court judgement.

The statement obtained yesterday, read, “This is to inform the general public that the Federal Inland Revenue Service has lodged an appeal against the judgment of the Federal High Court, Port Harcourt Judicial Division, delivered by Honourable Justice Stephen Pam, in SUIT NO. FHC/PH/CS/149/2020-ATTORNEY GENERAL OF RIVERS STATE v. FEDERAL INLAND REVENUE SERVICE & ANOTHER.

“We have also sought an injunction pending appeal and a Stay of Execution of the said judgement.

“As the decision is being appealed and in view of the pending applications for injunction and stay of execution, which the FIRS has filed in court against the judgement, members of the public are advised to continue to comply with the Value Added Tax obligations until the matter is resolved by the appellate courts in order to avoid accruing the consequent penalties and interest for non-compliance.

“As the decision is being appealed and in view of the pending applications for injunction and stay of execution which the FIRS has filed in court against the judgement, members of the public are advised to continue to comply with the Value Added Tax obligations until the matter is resolved by the appellate courts in order to avoid accruing the consequent penalties and interest for non-compliance.”

FG May Lose N1.5tn Revenue in Historic Judgement

Meanwhile, the federal government may lose over N1.5 trillion in annual revenue from consumption tax if other states decide to align with the historic judgement, findings by THISDAY have shown.

Data compiled by THISDAY showed that VAT collections in 2020 totalled about N1.5 trillion, with the private sector, including banks and financial institutions, breweries, bottling and beverages, automobiles and assemblies, among others, accounting for N1.44 trillion of total VAT collections.

State ministries and parastatals contributed N59.04 billion to consumption tax in the period under review, while local government councils recorded N1.9 billion.

It was believed that the figures could have been higher, save for the adverse effect of the COVID-19 pandemic on the Nigerian economy last year, which impaired consumer spending at the time.

According to recent figures released by the National Bureau of Statistics (NBS), as of the second quarter of 2021 VAT amounted to about N1.01 trillion – N496.39 billion in Q1 and N512.25 billion in Q2.

The court had issued an order of perpetual injunction restraining FIRS and the Attorney General of the Federation, both first and second defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, Personal Income Tax and Value Added Tax.

The judge held that there was no constitutional basis for the FIRS to demand for and collect VAT, Withholding Tax, Education Tax, and Technology levy in the state or any other state of the federation, being that the constitutional powers and competence of the federal government was limited to taxation of incomes, profits and capital gains, which did 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 1999 Constitution.

The court agreed with the Rivers State government that it was the state and not FIRS that was 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.

The court also declared that the defendants were 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.

Rivers State had generated N97.15 billion from Pay as You Earn (PAYE) taxes, N979.13 million from Direct Assessment, N349.89 million from road taxes, and N12.25 billion from other taxes, including N6.45 billion from MDAs, in 2020.

The judgement, if implemented across the country, would be a major setback to the federal government’s efforts to boost its tax revenue drive.

Reacting to the development, Fiscal Policy Partner and Africa Tax Leader at PwC, Mr. Taiwo Oyedele, told THISDAY that the practice of the federal government collecting VAT and PIT on behalf of states had been going on because states did not have the capacity to collect them.

Oyedele stated, “Based on the constitution, consumption tax belongs to the states and I don’t think that anyone is debating that. So, what happened in 1993, when the VAT law was introduced, was the understanding that the federal government had the capacity to collect.

“At the time, even Lagos State did not have the capacity to collect. So, the federal government was only collecting on behalf of the states and then keeping a percentage to cover the cost of collecting. We can debate on whether the percentage is high or not and that is why they only keep 15 per cent and 85 per cent goes to the states and local governments.

“We have also had different cases in the past, including up to the Supreme Court, which was between Lagos State and Federal Inland Revenue Service (FIRS), and it was a debate between VAT and consumption tax.”

THISDAY NEWSPAPER.

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