Business - Business & Economy - News - September 8, 2021

VAT collection controversy: 85% of VAT revenue goes to States, LGs, says FIRS

Out of the total revenue realized from value added tax (VAT) collection, 85 percent goes to the 36 States and 774 Local Government Councils, the Federal Inland Revenue Service (FIRS) has clarified.

The clarification was made on Thursday in Abuja by the Group Lead, Special Operations, FIRS, Mathew Gbonjubola, amid the raging controversy over who, between the Rivers State government and the tax agency, has the constitutional right to collect VAT.

A fortnight ago, the Federal High Court in Port Harcourt ruled that the Rivers State government, rather than FIRS, had the right to collect VAT and related taxes in the country.

Justice Stephen Pam of the Federal High Court, Port Harcourt said in his ruling in suit No. FHC/PH/CS/149/2020 filed by the Rivers State government said the FIRS has no authority under the constitution to collect VAT and personal income tax (PIT) in the state.

Justice Pam declared there was no constitutional basis for the FIRS to demand and collect VAT, withholding tax, education tax and technology levy in Rivers State or any other state of the Federation on behalf of the Federal Government.

He argued that the constitutional powers and competence of the FIRS to demand and collect taxes was limited to taxation of incomes, profits and capital gains, excluding VAT or any other species of sales, or levy other than items specifically listed under Section 58 and 59 of Part 1 of the Second Schedule of the 1999 Constitution (as amended).

Since the judgment, although the FIRS said it has since appealed the judgement, the  Rivers state government has proceeded with preparations to commence collection of VAT pursuant to the judgment.

The State governor, Nyesom Wike, has already announced the signing into law of a bill empowering the state to collect VAT.

He has also notified all interest groups to be guided on their VAT payment and collection transactions, warning that any company that fails to comply risks a summary closure.

But in providing clarifications over the controversy, Gbonjubola traced the history of VAT, which he said was established through the instrumentation of the VAT Bill of 1993 passed into law in 1994.

Gbonjubola said in line with the law that established VAT in the country, the FIRS was the only legitimate authority to mandated to administer and collect VAT revenue.

The VAT law, he explained, abrogated all sales income tax as at the time the law was enacted,

Upon the advent of the current democratic dispensation, he said
the VAT law became an Act of the National Assembly till date.

“Till today, VAT is administered on behalf of the Federation and not on behalf of the Federal Government contrary to the misconception in some quarters.

“By implication, what it means is that VAT is administered on behalf of the three tiers of the government in Nigeria, made up of the 774 local governments, 36 states and the Federal Capital Territory (FCT) and the federal government,” he said.

The revenue arising from VAT collections, he further clarified, is shared amongst the three tiers of government base on approved provisions.

Under the existing revenue sharing formula approved the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), 35% of all revenue collections goes to the local government, 50% to the state governments, while 15% goes to the federal government.

“In actual effect, 85% of VAT collected by the FIRS goes to state and local government, with only 15% to the federal government”, he said.

On where the VAT revenue was saved, Gbonjubola said all revenues realised from VAT are paid into the Federation Account called the VAT pool account.

He said is only after the sharing and Allocation to the three tiers of government has been completed that the portion belonging to the federal government would be transferred to the relevant cost delegated revenue account.

On the incidence of VAT, the FIRS Group Lead said VAT was practiced on an input-output mechanism basis, for either import or products buying business.

He said in either case, VAT would be paid either at the port, if it was importing, or to the manufacturer, if it was buying from a local manufacturer.

Besides, he said when the business paya VAT, it would be accounted for that business as an input tax, such that when it began to sell in any part of Nigeria and charges VAT to its own customers, it would be able to recoup the input tax paid either at the port, if it is an imported item, or paid to the manufacturer, if it is an item bought locally, and it works only at a national level.

VAT, he said, can not work at subnational level, because VAT depends on the input-output mechanism, because there is a single tax authority handling VAT.

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