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VAT war: Rivers State heads for Supreme Court

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In what appears a long drawn battle,the Rivers state has approached the Supreme court to adjudicate in the judgement of the Federal Appeal Court which last week ordered that both The Rivers State Government and the Federal Inland Revenue Service (FIRS) should maintain status quo on the Value Added Tax imbroglio, the Rivers State has approached the Supreme Court, challenging the order by the Court of Appeal.

In the notice of appeal, the Rivers State Government is arguing, among others, that the “Justices of the Court of Appeal erred in law when they relied on the provisions of Section 6(6) of the Constitution and the inherent jurisdiction of the court to found their decision to make an order to maintain status quo which they identified as restoring the parties to the position they were before the judgment of the Federal High Court in FHC/PH/CS/149/2020 was delivered on 9th August 2021.”

Rivers State is also arguing that “the learned Justices of the Court of Appeal erred in law when they wrongly assumed jurisdiction to entertain the oral application for maintenance of status quo made by the counsel for the Federal Inland Revenue Service (the 1st Respondent herein) in spite of the fact that a condition precedent to the invocation of the jurisdiction of the Court of Appeal was not fulfilled by the first respondent.”

The Federal High Court, Port Harcourt, had on August 9 declared that the Rivers State Government and not FIRS should collect VAT and Personal Income Tax in the state.

However the Court of Appeal on Friday held that parties should refrain from giving effect to the judgment of the trial court in Port Harcourt pending the hearing and determination of the application of the FIRS to stay execution of the trial court’s judgment.

Readers need to be informed that if the judgment of the Federal High Court asking states government to collect Value Added Tax in their domain is upheld by the Appeal Court, the Federal Inland Revenue Service will lose about N92bn which it is expected to earn as cost of collection.

The Punch Newspaper further reported that the law setting up the FIRS allows the agency to a percentage, as determined by the National Assembly, as its cost of revenue collection from non-oil taxes before remitting same into the federation account.

A report on FIRS official website revealed that the service collects four per cent as cost of collection for non-oil revenue collected.

The FIRS is one of the agencies of the government that generates revenue for sharing by the three tiers of government.

Others are the Nigeria Customs Service and the Nigerian National Petroleum Corporation.

The highest source of revenue for the FIRS is Petroleum Tax followed by VAT. Others include Stamp Duty, Company Income Tax.

In the 2016 fiscal period, the FIRS received the sum of N85.99bn as cost of revenue collection, while it got N100.3bn as the cost of revenue collection in 2017.

In the 2018 fiscal year, the service got N114.1bn as the cost of revenue collection out of the N5.32tn actual revenue it generated for that year.

According to documents obtained from the Budget Office, the FIRS received an estimate of N112bn and N121bn as cost of revenue collected in 2019 and 2020 respectively.

With a projected VAT pool of N1.3tn in 2021, the FIRS is expected to earn N68bn in the 2021 fiscal period based on the cost of collection rule.

Based on the Medium-Term Expenditure Framework/Fiscal Strategy Paper 2022-2024, the Federal Government is proposing to generate the sum of N2.3trn from VAT in 2022.

With the FIRS entitled to four per cent as cost of collection, it implies that the service is expected to earn N92bn in 2022 as cost of revenue collection.

A Federal High Court sitting in Port Harcourt, Rivers State, had dismissed an application by the Federal Inland Revenue Service, FIRS, seeking to stop the state governments from commencing collection of Value Added Tax, in the state.

Consequent upon the court ruling last Monday, Governor Nyesom Wike, had directed the Rivers State Revenue Service, to immediately commence collection of Value Added Tax, VAT, from corporate bodies and businesses in the state.

Already, the dispute between the FIRS and Rivers State over the collection of VAT has inspired some more states such as Lagos, Ogun and Akwa Ibom, to enact laws that will enable them to collect the tax in their states.

It was learnt that stripping the FIRS of the power to collect VAT would reduce the commission the agency will be receiving.

Speaking on the implication of the judgment, the Group Lead, Special Operations Group, FIRS, Mathew Gbonjubola, stated that there was nowhere in the world where the administration of VAT was done at the subnational level.

He said that contrary to misconceptions in some quarters, the FIRS administered VAT on behalf of the three tiers of government and not for the Federal Government alone.

According to him, the revenue from VAT is administered under an arrangement that allows the Federal Government to collect 15 per cent, states 50 per cent and Local Governments 35 per cent.

The implication of this, according to him, is that the state and local governments take about 85 per cent of VAT proceeds.

Meanwhile, the two chambers of the National Assembly may not debate the controversial issues of the VAT Stamp Duty on resumption today, one of our correspondents learnt.

The Executive Chairman of the Federal Inland Revenue Service, Muhammad Nami, had penultimate week, told the Senate Joint Committees working on the Medium Term Expenditure Framework and Fiscal Strategy Paper, that the agency would soon approach the nation’s legislature with a bill to amend the Finance Act 2021.

The amendment, according to Nami, will centre basically on the issue of Stamp Duty and how to drag those transacting businesses on the social media to the tax net.

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