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Why VAT can’t work in states – FIRS

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THE Federal Inland Revenue Service (FIRS) has said that it will be impossible to operate value-added tax (VAT) in states or at the sub-national level.

Group Lead, Special Tax Operation Group of the FIRS Matthew Gbonjubola said this during a press briefing on Wednesday, stating that it could result in confusion and multiple collection of taxes.

Gbonjubola noted that differences in the rates of VAT between states could lead to losses for vendors.


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“If for example, Osun State charges VAT, let’s say at 10 per cent. Sokoto State charges VAT, let’s say at five per cent. And so, at the point of procuring the goods, this guy would have paid VAT at ten per cent, but when he’s going to sell, he will only charge at five per cent.

“As such, the input suffered is greater than the output and the question is: who bears the shortfall of five per cent? Will you go to Osun State to collect that five per cent or will you ask Sokoto State to reimburse the merchant of five per cent?” he asked.

According to him, there was no country in the world collecting VAT at the state level due to the reasons he had just given.

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“You will find out that these two reasons are why it is extremely difficult, if not impossible, to operate VAT at sub-national level, and that is why there is no country in the world that does that,” he said.

The press briefing was held following a ruling by a Federal High Court in Port Harcourt last month, which stated that Rivers State had the authority to collect VAT generated within its territory.

The ruling also restrained the FIRS from collecting the said tax.

Gbonjubola, however, told the newsmen on Wednesday, that the FIRS had appealed the case and was awaiting judgment from a higher court.

The Rivers State Governor Nyesom Wike had accused the FIRS of secretly appealing to the National Assembly to transfer the collection of VAT from the Concurrent Legislative List to the Exclusive Legislative List, which includes issues that could only be decided by the Federal Government.

Wike had passed into law a new VAT Act empowering the state government to collect the tax, and received the support of Lagos State, where a similar bill passed second reading at house of assembly on Monday.

The Speaker of Lagos State House of Assembly Mudashiru Obasa noted that despite generating about N500 billion annually on VAT, the state received only a meagre sum from the Federal Government.

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Gbonjubola also addressed speculations on a social media tax bill, saying the FIRS was unaware of the existence of such bill as it was not being sponsored by the organisation.

“I am not aware that FIRS has presented any bill to the National Assembly to request for any social media tax and I can tell you, on behalf of my Executive Chairman,very clearly that this is not from us. So, if there is any such bill ta the National Assembly, the FIRS is not the sponsor and we have not seen it,” he said.

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4 COMMENTS

  1. Gbonjubola needs to re-educate himself about how countries that charge VAT at d state level do it easily. The problem with his example above is that he still has his mind focused on federal level VAT and portion it will get and not state level at all. D guy that procured his merchandise at Osun (10% VAT) and Sokoto (5% VAT) can sell at same VATs to Osun and Sokoto customers as he procured, and at 0% VAT to other customers from other states; if he has no way of identifying customer residence, he can charge all customers VAT rate of his state of residence and attenuate his cost differences by leveraging his selling price accordingly. Good business guys know how to do so to remain competitive in d market or capitalist economy.

  2. Gbonjubola needs to re-educate himself about how countries that charge VAT at d state level do it easily. The problem with his example above is that he still has his mind focused on federal level VAT and portion it will get and not state level at all. D guy that procured his merchandise at Osun (10% VAT) and Sokoto (5% VAT) can sell at same VATs to Osun and Sokoto customers as he procured, and at 0% VAT to other customers from other states; if he has no way of identifying customer residence, he can charge all customers VAT rate of his state of residence and attenuate his cost differences by leveraging his selling price accordingly. Good business guys know how to do so to remain competitive in d market or capitalist economy.

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