A lot has been said about the need for State governments to collect Value Added Tax (VAT) in their domains, but no concrete action was taken until Governor Nyesom Wike of Rivers State challenged the unfair practice in court.
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After Wike’s audacious suit challenging the FIRS and the Attorney General of the Federation, the Port Harcourt Judicial Division of the Federal High Court issued a restraining order on the Federal Inland Revenue Service (FIRS) from collecting VAT and Personal Income Tax (PIT) in Rivers State on August 9.
Nyesom Wike signed into law a new bill on VAT collection in the state the day after the court order. Now, Lagos state has begun collecting VAT too; and other states will soon follow suit.
Previously, the Federal Government through the Federal Inland Revenue Service (FIRS) has been saddled with the responsibility of collecting VAT generating in each of the 36 states and the FCT. The FIRS issues demand notices for payment of VAT in the state and are compelled to render accounts of all sums collected as VAT in the current accounting circle in the state within the space of seven days. From the FIRS purse, the funds are then routed to the Revenue Mobilisation and Fiscal Commission (RMAFC) where they will be distributed to the 3 tiers of executive administration – Federal, State and Local Governments.
For far too long, this practice generated a lot of controversies especially as some VAT-generating sources such as alcohol consumption and sales remains banned in most of the Sharia states in Northern Nigeria. We have seen instances of the Hisbah Police in the Sharia States destroying tonnes of alcoholic drinks and closing down stores selling items considered to be haram.
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The reality above begs the question of why the Sharia states that have restricted the inflow of VAT for religious reasons should benefit from it at all. Also, it makes absolutely little sense that most taxes should go all the way into the Federal purse before it is now being redistributed to the State governments. This was the same type of practice frowned at by Southern state governments in the days when Resource Control was advocated.
Now, the FIRS has appealed the court case and Katsina state seems to be leading the group of Northern states that will be fighting the VAT battle further at higher courts.
For one reason, the States in the North where Sharia reign supreme knows that the judgment will never augur well for them because it will signal an immediate drop in expected allocation from the Federal purse. For another reason, the Federal government will see the judgment on VAT not only in terms of revenue drop but also as a rebellion by the States to seize their autonomy.
Candidly, if the higher courts back the Federal High Court’s decision on VAT remittance to States, it would translate to the beginning of an unforced Restructuring and the onset of True Federalism.
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