VAT: FIRS loses, Lagos joins tax war as Rivers digs in

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

The ruling came on a day the Lagos State House of Assembly read for the first and second time, the state’s Value Added Tax, VAT, bill and asked its Committee on Finance which is handling it, to report back on Thursday.

The Assembly also lamented low monthly allocation from VAT to the state by the Federal Government despite huge collection from the state.

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

FIRS had, yesterday, prayed the court to stay execution on the earlier judgment of its that stopped it from collecting VAT.

The FIRS had, following the judgment against it, which held that it is constitutionally the role of state governments to collect VAT, prayed the high court to stop Rivers State Government from executing the judgment.

But Justice Stephen Pam, in his ruling, said granting the application will negate the principle of equity.

He also noted that in as much as the state government and the state legislature had enacted a law in respect of VAT,  courts are bound to recognise such a law.

He noted that the Rivers State Government and the State House of Assembly had duly enacted Rivers State Value Added Tax No. 4, 2021, which made it a legitimate right of the state to collect VAT.

‘Granting FIRS prayer is murder’

The judge said the law is valid until set aside by a superior court, adding that the law enacted by the Rivers State legislature remains valid.

Justice Pam added that granting the prayers of FIRS would amount to committing murder, noting  the prayers could not stand and dismissed same.

Earlier,  Justice Pam had read a letter FIRS, lawyers served the court, seeking a stay-of-execution of any ruling on their application.

However, in the absence of any requisite document that ought to have been attached to the letter, the judge dismissed the letter.

Meanwhile, counsel to Rivers State Government, Mark Agu, commended the court for standing for justice, noting that the state House of Assembly had already made a standing law on VAT.

Agu disclosed that FIRS had approached the court with two prayers but noted that they withdrew the first prayer seeking injunction and wanted the court to stay the execution of the judgment.

He said: “Today, the court has delivered its ruling dismissing the said application for stay, though, without cost.

“The court’s reasoning is that if it should grant stay, it was more or less like overruling itself and the court is empowered to recognise all laws enacted by the National Assembly or the state House of Assembly, therefore, the law stands as substantive.

“Therefore, the issue of collection of VAT as it stands today is that Rivers State is still entitled to collect it.”

‘FIRS to appeal further’

Counsel for FIRS, Reuben Wanogho, expressed displeasure with the stand of the court, noting that FIRS will not hesitate to appeal the ruling.

Wanogho said: “The court has delivered its ruling on the basis of how it saw the facts of the case. We do not agree with the ruling and we will take all necessary steps to challenge it. That is why the appellate system is there.

“The appellate system is there to enable us ventilate our grievances if for any reasons the court makes a pronouncement we do not agree with it.

“For sure, we feel that the ruling should have gone in our favour, but the court has taken a position against us, so we will do the needful by taking it up immediately before the court of appeal.

“The natural consequences of the ruling is that the Rivers State Government will be collecting the VAT, but we will take steps to ensure we ameliorate the situation as quickly as possible.”

Wike orders immediate enforcement of VAT collection

Barely hours after the ruling, Governor Wike, who also tasked governors of the 36 states of the federation  to stand up for the actualisation of devolution of powers between the centre and the federating units, in a state-wide broadcast  at Government House, Port Harcourt, celebrated FIRS’s failed attempt to frustrate the enforcement of the state’s Law on VAT.

The governor said the order for immediate enforcement followed the ruling of the court in Port Harcourt that dismissed the suit of the Federal Government through FIRS, to stay the judgment of the court that allowed the state to collect VAT from firms.

Wike said:  ‘’As we all know, following the recent judgment of the Federal High Court, Port Harcourt, which upheld the constitutional right and authority of state governments to impose, collect and utilize value added taxes, VAT, within their respective territorial jurisdictions,  Rivers State government enacted the Rivers State Value Added Tax Law 2021 to regulate the effective administration of VAT in Rivers State.

“However, being a government that believes in the rule of law, we decided on our own to suspend the enforcement of the Rivers State VAT Law 2021, pending the outcome of the FIRS’s application for stay-of-execution.

“With today’s  (yesterday) judgment, the way is now clear for the administration and enforcement of Rivers State Value Added Tax Law 2021 across the entire state until otherwise decided and set aside by the superior courts.

“Consequently, I, hereby, direct the Rivers State Revenue Service, RSRS, to ensure the full and total implementation and enforcement of this law against all corporate bodies, business entities and individuals with immediate effect.”

He acknowledged that some states with currently low economic activities and ethically restrictive social policies with economic implications might be adversely affected for now, insisting that fiscal federalism remained key for economic independence of state.

“Above all, fiscal federalism remains the right path to economic self-reliance and sustainability for all our states and the benefits derivable from this case by all the states in the long run far outweigh the immediate revenue loss that some states may currently suffer.

“All that is required is for all of us to wear our thinking caps as elected governors to collectively fight for the greater devolution of resources, responsibilities and powers to the federating states.”

Lagos Assembly works on VAT bill

Meanwhile, the Lagos State Value Added Tax bill was read for the first and second time in the state House of Assembly yesterday, as the document was  referred to the Committee on Finance to report back on Thursday.

Speaker of the House, Dr Mudashiru Obasa, before the bill was referred to the Committee on Finance, said it will lead to “Increase in revenue and in infrastructural development. This is in line with fiscal federalism we have been talking about.”

Obasa noted that the VAT bill when passed into law, will help the state meet challenges in its various sectors.

He also urged the Lagos State Government to do everything legally possible to ensure the judgment of a Federal High Court in Port Harcourt, was sustained, even up to the Supreme Court.

The speaker lamented a situation where about N500 billion was generated from Lagos State, while N300 billion was generated from other South West states, with  paltry amounts disbursed to them in return.

“It is an opportunity for us to emphasise again the need for the consideration of true federalism,” he said.

Lending credence to the lawmakers’ position, a public affairs analyst, Tayo Ogunbiyi said: “It is about supporting the quest of Rivers State which has already filed a case at the Federal High Court, Port Harcourt which it won on why states should legitimately collect all VAT in their states and not the Federal Government that presently does and now redistribute, taking 15 per cent, giving states 55 per cent and the rest to LGs.

“Although FIRS has appealed the judgement, everyone and other states who are advocates of fiscal federalism must support the quest by River State. VAT is a form of sales tax and the Supreme Court ruled in 2015 or thereabouts that states are empowered to collect sales tax and not Federal Government which then redistributes.

‘’Lagos contributes over 60 per cent of the VAT collectibles but ends up getting a pittance after it is sent to Abuja.

“It is very unfair that many states in the North have Sharia police in place and they prevent people from drinking or selling alcohol but they end up sharing from the same alcohol money collected in other states.

‘’Countries like Canada, USA, Switzerland are examples of countries where sales tax are collected by the states or sub-national governments and not the Federal. Push the narrative that states should be supported in this quest.’’

Credit: Vanguard