VAT controversy: FIRS may lose N2.4tn revenue to states

The Federal Inland Revenue Service may lose over N2.4tn revenue to the 36 state governments in 2022 if it loses its appeal against a Federal High Court verdict which barred it from collecting the Value Added Tax and Personal Income Tax.

The N2.4tn is what the FIRS projects to collect from the VAT if retains the authority to collect consumption based tax, a document available to our correspondent has shown.

The FHC sitting in Port Harcourt, the Rivers State capital, had on August 10 ruled that states and not the FIRS have the legal rights to collect VAT and income tax.

The FIRS has appealed the judgement.

Meanwhile, the governments of Lagos and Rivers states have expressed their readiness to begin the collection of Value Added Tax in accordance with the judgment.

Rivers State Governor, Nyesom Wike, had signed into law the bill that empowers the state to collect VAT, while the Lagos State Government said it had already notified all the stakeholders involved in the payment and receipt of VAT of its resolve to enforce the judgment to the letter.

These are in spite of the opposition by the FIRS, which already filed an appeal against the judgment. Some northern states say they prefer the Federal Government to continue collecting the tax.

The Joint Senate Committees working on the 2022 – 2024 Medium Term Expenditure and Fiscal Strategy, on Friday expressed concerns over the development but the Chairman of the FIRS, Muhammad Nami, allayed the fears of the joint panels.

The Chairman of the Senate Committee on Finance who chaired the joint MTEF panels, Senator Solomon Adeola, specifically asked Nami while he didn’t speak on the court judgment and the revenue generating agency boss replied that the case had been appealed.

Nami said, “I did not deliberately mention the issue because doing so would be subjudice since it is already pending before the Court of Appeal.”

The FIRS boss however proceeded to present his agency’s revenue projection for 2022, 2023 and 2024 fiscal years.

A document, he submitted to the joint panels which was exclusively obtained by our correspondent indicated that the agency projected to raise N2.44tn from both import and non-import VAT in 2022.

The breakdown shows that the agency is targeting N1.83tn from non-import VAT and N610.45bn from the Nigerian Customs Service import VAT.

The agency also proposed to raise about N2.67tn from both sources in the 2023 fiscal year.

The breakdown also shows that the agency is targeting N2tn from non-import VAT and N668.31bn from the NCS import VAT.

The projection for 2024, according to the document, however, shows that the FIRS hopes to realise N2.94tn in the fiscal year from VAT.

Based on the breakdown, the agency is targeting N2.2tn from non-import VAT and N668.31bn from the NCS import VAT.

Justice Stephen Pam, who delivered the judgment against the FIRS on August 10, had restrained the agency and the Attorney General of the Federation from demanding the taxes from the residents of the Rivers State. This, by implication, affects other states.

VAT is charged on the supply of goods and services in Nigeria, including those imported into the country, except the goods and services are specifically exempted under the VAT Act.

By virtue of the Finance Act 2020, which took effect on February 1, 2020, the Value Added Tax charged on affected goods and services rose from five per cent to 7.5 per cent.

Yearly, VAT contributes significantly to the total revenue generated by the government.

Prior to the court judgment, however, the FIRS, an agency of the Federal Government, had the responsibility of collecting VAT on behalf of the 36 states of the federation and the Federal Capital Territory.

The sum collected is then shared among the three tiers of government, with the Federal Government taking 15 per cent, the states 50 per cent; local governments 35 per cent.

Credit: Punch