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Tax expert urges FG, states to dialogue VAT sharing formula

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A TAX expert has urged Nigeria’s Federal Government and states to dialogue a value added tax (VAT) sharing formula, saying that rulings by Court of Appeal and Supreme Court will not resolve conflicts surrounding the consumption tax. 

Former member of the National Economic Council Emmanuel Ijewere said on Channels TV’s ‘Sunrise Daily’ on Thursday that whatever decision the courts took would not end the stalemate caused by the matter.

“Whatever happens at the courts, value added tax will not be the same anymore. If the Supreme Court says the FIRS should collect the VAT, I assure you that there will be no end to it because what’s involved here is a huge amount of money.

“And, states, which have political responsibility, will not allow it to stay there. So, the fighting will continue, the confusion will continue, and sabotage will come into it,” he said.

He said the electorate would not allow their governors to rest if the judgment did not favour them because of the huge amount involved in the VAT.

Ijewere blamed the military regime of General Ibrahim Babangida for the VAT crisis.

He said during the military regimes, state governments collected what was then known as ‘sales tax’ through their officials.

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Sales tax, he said, metamorphosed into value added tax after his team of tax experts made a recommendation to the Babangida regime on how to improve sales tax by state governments.

While states collected sales tax by their employees, the Federal Government also had its tax collectors – the Federal Inland Revenue Service.

He said his team made the recommendations to Babangida’s government because tax officials saw their work as a routine job and not as a profession, thereby making their operations inefficient at the time.

After his team submitted its recommendations, General Babangida set up a 28-man committee, to which he (Ijewere) belonged, to review tax collection among states and the Federal Government. The government converted his team to the Modified Value Added Tax Committee.

“When we presented the report in 1992, we found out that the Supreme Military Council changed it that it could no longer be what we presented to them. That is, each state should collect its tax. Because their system was not strong enough, we recommended a commission that would act as agent for them, and at the end of every month present the report on the amount collected to each state.”

The committee, Ijewere said, suggested that the commission would take five per cent of the fund it generated to train the tax collectors in the states. 

The committee recommended that the commission end its work within four or five years, after which states should have got enough workforce to collect the VAT, and they would fully assume power over VAT collection.

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Before his team submitted its report, it consulted leading financial institutions, including the World Bank, he said.

He further said that the former chairman of the Federal Inland Revenue Service David Olorunleke and many state governors were also pleased with the team’s recommendations.

He said part of his team’s recommendation was that the Federal Government would take taxes from ports, while the states would take from other places other than the ports.

He said whatever the outcome of the court ruling would be, states should be more serious with revenue generation.

He also said whatever the court’s ruling on the matter would be, the mindset of states and the Federal Government would no longer be the same.

He described the enactment of VAT laws by states as the beginning of fiscal federalism in the country.

He, nevertheless, said some of the laws “are not realistic” because they failed to consider the inter-state movement of goods, adding that state laws could only apply in their territory.

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Rivers State assumed the power of collecting VAT after FIRS lost its bid to secure a stay of execution on an earlier court ruling empowering states to collect VAT on August 6.

A Federal High Court sitting in Port Harcourt, the state capital, dismissed the FIRS’ suit number FHC/PH/CS/149/2020 and reaffirmed the earlier order that the state governments should collect VAT and not the federal agency.

Rift over the VAT collection took a new twist on September 8 after the Rivers State government met with and read the riot act to business owners and other investors, charging them to stop paying VAT to the Federal Government.

Responding, the FIRS rushed to hold a press briefing in Abuja, directing the taxpayers to continue to pay the consumption tax into its coffers.

The Federal Government also got a court order directing the parties to maintain the status quo last Friday.

Lagos State accounts for an estimated 55 per cent of VAT, according to financial experts. The state is followed by Rivers.

The two states contribute over 70 per cent of collectable VAT in the country.

 Apart from Lagos and Rivers governments that have signed the VAT bill into law, Ogun State is among states in the country’s south that will soon have the law, even though the issue has pitched the governors against one another.

If you or someone you know has a lead, tip or personal experience about this report, our WhatsApp line is open and confidential for a conversation

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