Kingsley Moghlau, a former Deputy Governor of the Central Bank of Nigeria, CBN has disclosed that the ongoing squabble between the federal and some state government over the collection of the Value Added Tax, VAT will reset the country’s fiscal problems. He added that the legal battle between the federal and Rivers state is part of the ongoing process to restructuring the country.
A federal high court in Rivers state, had last month, upheld the power of the state governments to collect VAT. Even though the Federal Inland Revenue Service, FIRS which collects VAT on behalf of the federal government has appealed the judgment, Rivers state insisted that it will go ahead with the collection as directed by the court.
Apart from Rivers, Lagos state, on Monday gave an indication to tow the same line as a bill empowering the state to collect VAT passed Second Reading in the state House of Assembly, while Adamawa state said it will proceed with the enactment of its own law on VAT.
The legal tussle is expected to proceed to the Supreme Court, but analysts insist that at least 30 states will be bankrupt should the apex court ruled in favor of the state to collect VAT.
Reacting to the issue on Twitter on Wednesday, Moghalu, a former Presidential aspirant said the VAT fiasco exposed the country as a fiscally failed state.
He explained that the restructuring that many Nigerians are clamouring for “has already begun”.
According to him “The Federal High Court ruling on VAT is the correct one, though we can expect litigation all the way to the Supreme Court.
It strikes a strong blow at THE LAZY FEDERAL GOVERNMENT whose head once called our youth “lazy”. Nigeria has long been a fiscally failed state.
“Why should states in a supposed federation be producing mainly for the Federal Government. Restructuring has already begun, by fire by force. I pity those who think they can stop the wind.”
On August 9, Justice Stephen Pam of the Federal High Court, Port Harcourt restrained FIRS and the Attorney-General of the Federation, both 1st and 2nd defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, both PIT and VAT.
Justice Pam in his judgment in the suit by the Attorney-General for Rivers State against FIRS and AGF granted all the 11 reliefs sought by the Rivers Government.
The court held that there was no constitutional basis for the FIRS to demand and collect VAT, Withholding Tax, Education Tax and Technology Levy in Rivers or any other state of the federation, being that the constitutional powers and competence of the Federal Government was limited to taxation of incomes, profits and capital gains, which does not include VAT or any other species of sales, or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the Constitution.
The judge dismissed the preliminary objections by the defendants that the court lacks jurisdiction to hear the suit and that the case should be transferred to the Court of Appeal for interpretation.
Justice Pam, who also dismissed the argument by the defendants that the National Assembly ought to have been made a party in the suit, held that the issues of taxes raised by the state government were issues of law that the court is constitutionally empowered to entertain.
The judge after a diligent review of the issues raised by the plaintiff and the defendants held that the plaintiff had proved beyond doubt that it was entitled to all the 11 reliefs sought.
The court agreed with the Rivers Government that it was the state and not FIRS that is constitutionally entitled to impose taxes enforceable or collectable in its territory like consumption or sales tax, VAT, education and other taxes or levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended.
The court declared that the defendants were not constitutionally entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on residents of Rivers and indeed any state of the federation.
Rivers State Government had asked the court to declare that the constitutional power of the Federal Government to impose taxes and duties was limited to items listed in items 58 and 59 of Part 1 of the Second Schedule of the 1999 Constitution (as amended).
The state government had also urged the court to declare that by virtue of the provisions of items 7 and 8 of Part II (Concurrent Legislative List) of the Second Schedule of the Constitution, the power of the Federal Government to delegate the collection of taxes can only be exercised by the state government or other authority of the state and no other person.
Rivers Government had further asked the court to declare that all statutory provisions made or purportedly made in the exercise of the legislative powers of the Federal Government, which contains provisions which are inconsistent with or over the powers to impose tax and duties, as prescribed by items 58 and 59 of Part I of the Second Schedule of the 1999 Constitution, or inconsistence of the power to delegate the duty of collection of taxes, as contained in items 7 and 8 of Part II of the Second Schedule of the Constitution, are unconstitutional, null and void.
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