FG vs Rivers: The VAT War Continues

By Tosin Olatokunbo

The Federal Inland Revenue Service, FIRS insistence that the agency will continue to collect the Value Added Tax, VAT will further exacerbate the battle between the Rivers state government and federal government  on who has the power to do so.

Over N1.5 trillion VAT was collected last year and shared by the Federal and 36 state governments, according to the National Bureau of Statistics, NBS. The collection of VAT, one of the Federal government’s major revenue sources has remined one of the sore points in the relationship between the two tiers of government, as many states are agitating that VAT should be collected by them to bolster revenue capabilities.

The Governor Nyesom Wike-led administration recently got a judgment from a federal High court in the state, declaring the power of the federal government to collect VAT, null and void.

The state government has gone further to legitimize its power to collect VAT in the state, following the enactment of a legislation by the Rivers’ state House of Assembly, which has now been signed by the governor.

While signing the bill Wike said the judgment had sufficiently addressed the illegality perpetrated by FIRS on behalf of the Federal Government in the collection of VAT in States

Wike pointed out that when agencies of the federal government are allowed to illegally demand and collect taxes meant for the state government to collect, they strangulate the state financially and turn them to be beggars.

According to him “But we (Rivers State) are standing on the part of history as representatives of the state to have taken the bull by the horn to challenge the illegality of the Federal Government through the Federal inland Revenue Services (FIRS).’

He said the act is limiting the capacity of states to generate needed revenue for the provision of critical infrastructure to their people.

He said “Of course, we are all aware that the states have already been strangulated. Most states depend on allocation from the federation account. States have been turned to beggars. Hardly will any day pass that you won’t see one state or the other going to Abuja to beg for one fund or the other.”

But the FIRS has insisted that it will continue to collect VAT, and warned that those who pay to state will be prosecuted.

The federal government agency said an appeal on the case is still pending at the Court Appeal, warning that the status quo (where FIRS collects VAT) remained until litigation on the issue has been exhausted.

The agency also stated that it has obtained an injunction to restrain Rivers State from taking any further action on the issue until the appeal has been heard.

The FIRS said the directive became necessary in light of series of enquiries to the Service in view of the judgment

In a statement, Abdullahi Ahmad, Director of Communications and Liaison Department of FIRS said since the it has already appealed the Rivers judgment in which it is seeking a stay of execution order, the status quo ante subsists on the VAT collection authority, hence taxpayers should continue to pay their VAT to the FIRS.

The statement said “The attention of the Federal Inland Revenue Service(FIRS) has been drawn to the trending report that, on 19/08/2021, the Government of Rivers State took steps to enact a Value Added Tax Law for Rivers State following the Judgment of the Federal High Court Port Harcourt Division on 9th August 2021 in Suit No: CS/149/2020.  The suit was about who has the constitutional duty for the collection of VAT and Personal income tax in Rivers State.

“We wish to inform the general public that, before the above-mentioned steps taken by the Government of Rivers State, FIRS had lodged an appeal against the above judgment and had also filed an application for stay of execution of the Judgment as well asking the Court for an injunction pending determination of the appeal.

“All parties to the suit are aware that both applications were heard on the 19th and 20th August 2021 and are awaiting the decision of the Court.

“Given that the Court of Appeal is yet to rule on the Appeal from the Judgement of Federal High Court and that the Federal High Court is yet to deliver a ruling on FIRS’s applications for stay of execution and injunction, members of the public are advised to continue to comply with their Value Added Tax obligations until the matter is resolved by the appellate courts,” the agency said.

Meanwhile, the magazine had reported that some state government in the country are already gearing up to seek a legal recourse against the federal government over the continued collection of VAT by FIRS. On its part, the FIRS has also been lobbying the National Assembly to include VAT in the exclusive legislative list. It seems the battle has just begun.