The Federal Inland Revenue Service (FIRS) has warned the courts not to allow themselves to be used to fuel confusion in the raging value added tax collection controversy.
Recently, the Federal High Court in Port Harcourt in a suit filed by the Rivers State government ruled that States, not the Federal Government, 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- Attorney General of Rivers State vs Federal Inland Revenue Service & another ruled that the Rivers State and not the Federal Government through the FIRS was rightfully authorized under the constitution to collect VAT and personal income tax (PIT) in the state.
In his ruling, Justice Pam declared that 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 Federal Government to demand and collect taxes was limited to taxation of incomes, profits and capital gains, which did not include 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).
The judgment therefore restrained the FIRS and the Attorney General of the Federation (AGF) from continuing to demand, collect, or threatening and intimidating residents of Rivers State to pay for VAT and PIT to the FIRS.
In its application, the state government urged the court to declare that sections 7 and 8, Part II (Concurrent Legislative List) of the Second Schedule of the Constitution, empowered the Federal Government to delegate the collection of taxes to the state government or other authority of the state and no other person, including the FIRS.
In addition, the state government asked the court to declare that all statutory provisions made or purportedly made in the exercise of the legislative powers of the Federal Government by FIRS inconsistent with or over the powers to impose tax and duties, as prescribed by sections 58 and 59 of Part I of the Second Schedule of the 1999 Constitution, or inconsistent with the power to delegate the duty of collection of taxes, as contained in sections 7 and 8 of Part II of the Second Schedule of the Constitution, were unconstitutional, null and void.
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 said the it has appealed the judgement. But the Rivers state government has gone ahead to commence preparations towards collection of VAT pursuant to the judgment.
The State governor, Nyesom Wike, signed into law the bill empowering the state to collect VAT, and has notified all interest groups to be guided on their VAT payment and collection transactions.
Some governments in the northern part of the country have cashed in on the confusion to say they support the FIRS to continue collecting the tax.
On Monday, the FIRS reiterated its appeal to taxpayers to ignore the ruling of the Federal High Court in Port Harcourt which dismissed its motion for stay of execution of the judgment.
The tax agency said tax payers should continue to comply with their VAT collection and payment obligations within the existing framework involving the FIRS “until the Court of Appeal, or even the Supreme Court, determines the matter.”
“The FIRS having lodged, in the Court of Appeal, both an appeal against the decision of the Federal High Court sitting in Rivers State in Suit No. FHC/PH/CS/149/2020, Attorney General of Rivers State Vs Federal Inland Revenue Service, and an injunction pending appeal of the said judgement, assures taxpayers that there was no cause for alarm.
“The Federal High Court ruling should not breed any confusion as to the obligations of taxpayers. Taxpayers must continue to comply with the Value Added Tax Act pending the final determination of appeal.
“Taxpayers must continue to honour their tax obligations under the VAT Act. Failure to do this would put them on collision course with the law”, the statement said.