A Widening Gulf between the Federal and State Governments

The Federal and State governments of Nigeria have been engulfed by a twin-hybrid issue of value added tax (VAT) and open grazing and there appears to be no end in sight as both issues have snowballed into legal and legislative battles.

Recall, that on August 9, 2021, a Federal High Court sitting in Port Harcourt in its judgment in a suit marked FHC/PH/CS/149/2020 held that the Rivers State Government had the powers to collect VAT and Personal Income Tax within its territory.

The Rivers State Governor, Nyesom Wike has maintained that the state government would go ahead with its move to stop the Federal Government through the Federal Inland Revenue Service (FIRS) from collecting Value Added Tax (VAT) from the oil-rich state.

The Governor at the meeting of stakeholders that includes representatives of oil companies and business owners in the state which was shown live on Channels Television, said he does not care if heaven falls, insisting that Rivers money is not meant for Abuja people but for the development of his state.

Wike, who expressed surprise at the level of injustice in the country said that Rivers State generated about N15 billion as VAT in June 2021 but received only N4.7 billion, Lagos State generated over N46 billion as VAT in June, but got just over N9 billion, whereas Kano State generated N2.8 billion and also got N2.8 billion as allocation.

The governor said he cannot continue to beg the Federal Government for what belongs to his state as some other state governors are doing and threatened to shut down all FIRS offices in the state if they continue to bully the state.

“Rivers State is challenging FIRS from collecting VAT in Rivers State. I am not challenging FIRS from collecting VAT in Abuja. Let it be understood. But the law says Rivers must collect VAT in the state.”

According to him, “The Federal Government surreptitiously lobbied to amend the constitution to place VAT collection under the exclusive legislative list. We have challenged it and we have no apologies to anybody.

“I don’t want to be in the good book of anybody but in the good book of God. You don’t bully a state like us. FIRS should be very careful. I have the political will to do a lot of things. If they continue to bully us, I will take all their offices in the state.’’

The governor warned the oil companies and business owners not to try and take advantage of the situation and say that they don’t know who to pay to as their VAT should be remitted to the Rives State Government and not FIRS.

He said that the state will start collecting its VAT from this September, and threatened to seal up premises of companies that fail to remit their taxes, adding that the state does not need the Nigeria Police Force to enforce the collection of VAT but would use the state-created security outfit backed by the law.

Wike said “We are going to inaugurate the Tax Appeal Commission by Friday which will be headed by a retired judge of the state.”

Just like Rivers State, Lagos Assembly also passed the value added tax (VAT) bill and the Speaker of the State House of Assembly. Mudashiru Obasa on Thursday, after the passage of the bill, directed the Acting Clerk of the House, Mr. Olalekan Onafeko, to transmit a clean copy to the state governor, Babajide Sanwo-Olu for prompt assent.

The House also passed the bill prohibiting open cattle grazing in the state, in line with the resolution earlier reached by Southern Governors.

Governor Nyesom Wike of Rivers State has also signed into law the bill on Value Added Tax (VAT) collection in the state as well as the Open Rearing and Grazing Prohibition Law No 5 of 2021 which was recently passed by the state House of Assembly at the Government House, Port Harcourt.

Analysts are of the views that many states in Nigeria may not be able to meet their financial commitments as the federal government could lose revenue from taxes amidst dwindling revenue in recent times with the court ruling assigning the collection of Value Added Tax (VAT) and two other taxes to states.

VAT contributes significantly to the total revenue generated by the government, accounting for over 16.2% of the Gross Domestic Product (GDP) in 2019.

Again, most states depend on funding from the Federal Allocation Account Committee (FAAC) due to their poor Internally Generated Revenue (IGR).

It is frightening that Lagos and Rivers states, which contribute over 70 per cent of the VAT collectibles in the country, have decided to enact a law that will empower them and not FG, to collect VAT in their states.

VAT was introduced via Decree No.102 of 1993. It replaced sales tax operated under Decree No.7 of 1986, which was administered by states and the Federal Capital Territory (FCT).

Up until now, the FIRS had the responsibility of collecting VAT on behalf of the 36 states and the FCT. Section 40 of the VAT Act requires that the VAT pool be shared 15% to the Federal Government; 50% to states; and 35% to Local Governments (net of 4% cost of collection by the FIRS). Twenty per cent of the pool is shared based on derivation.

The Federal Government generated over N2.5 trillion from VAT alone in the last 18 months as outlined in the 2020 Finance Act.

Data filed by the Federal Inland Revenue Service (FIRS) from the National Bureau of Statistics (NBS), shows that Nigeria may have earned about N2.5 trillion from January 2020 to June 2021 at a 7.5 per cent VAT rate.

The breakdown indicated that FIRS collected about N1.53tr in 2020 with import VAT being N348 billion (or 22.7%) while foreign non-import VAT was N420bn (or 27.4%) and local VAT amounted to N763bn (or 49.8%).

In the first quarter of 2021, VAT collection was N496.39bn while it increased by N15.8bn in the second quarter to N512.25bn.

The breakdown of VAT generation for second quarter shows that N187.4bn was from non-import VAT locally, N207.7bn from non-import VAT for foreign goods. The balance of N117.1bn VAT was from the Nigeria Customs Service (NCS) VAT on imports.

Recall, the FIRS in a bid to retain VAT collection has written the National Assembly, is seeking the inclusion of the tax in the exclusive legislative list. FIRS is also requesting the federal lawmakers to approve the establishment of the federal revenue court of Nigeria.

The Executive Chairman of the FIRS, Muhammad Nami, made these requests in a July 1 letter addressed to the Chairman of the Constitution Review who is also the Deputy Speaker of the House of Representatives, Idris Wase.

The agency specifically pleaded with the House of Representatives to vest, exclusively, all adjudication of tax disputes, including federal tax laws, companies income tax, petroleum tax, income tax, capital gain tax, stamp duty, VAT, taxes, levies and other laws, regulations, proclamations, government notices and rules on it.

Fiscal Policy Partner and Africa Tax Leader at the PriceWaterCoopers (PwC), Taiwo Oyedele, has explained that at least 30 states, which account for less than 20% of VAT collection would suffer significant revenue decline.

Oyedele noted that the federal government might be better off given that FCT generates the second-highest VAT (after Lagos) in addition to import and non-import foreign VAT.

According to him, the judgment may also have implications for taxes collectible by local governments, which are presently administered by states as well as the amendment via Finance Act 2020, which introduced Electronic Money Transfer levy in place of stamp duties, among others.

The former Director-General of Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, said VAT is essentially domiciled with the sub-nationals in many jurisdictions around the world, adding that in some instances, it is imposed as a consumption tax.

On the open grazing, the northern governors and their southern counterparts had already kicked against it because ranching was the more acceptable method and it was also part of the National Livestock Transformation Plan of the federal government.

Earlier, the presidency statement issued by Mallam Garba Shehu, had questioned the legality of the Southern governors’ resolutions, in which they, among others, banned open grazing of cattle in the South.

But, Shehu, while fielding questions on ARISE TV, said many people misconstrue Buhari’s views on the Southern governors’ resolutions at their May 11 meeting in Asaba, Delta State as an endorsement of open grazing.

Shehu made a detour when he said that Buhari would want to see an end to the archaic practice of open grazing of cattle.

He added that the objective of the president and that of the governors fully align, adding that the only difference between the positions of both parties is the approach to achieving the aim as the president is insistent that it should be done in an organised manner.

He said: “The president wants to see an end to open grazing; he wants to see ranching; but he wants it in a way that’s organised and he has a plan for it and the plan will take off in June.”

Shehu said States that were able to meet the minimum requirements would be encouraged to embark on ranching, and expressed optimism that those opposed to ranching will change their minds when it becomes fully functional.

Shehu disclosed that the president viewed open grazing as old-fashioned and was looking forward to a replacement for the medieval practice, stressing that banning open grazing without an alternative is not a good approach to the issue.

He expressed the president’s worry about the crisis generated by the matter, adding that the generalisation of every herder as criminals is not the right thing to do.

Shehu also acknowledged that that the ranks of the nomads had been infiltrated with people now bearing AK-47 rifles to kill and maim, but called for calm as the issue won’t be solved by public show of strength.

However, the Chairman of the Southern Governors’ Forum and Ondo State Governor, Mr. Rotimi Akeredolu, informed the presidency and warning that no land in the South will be ceded to those he described “as a band of invaders masquerading as herdsmen under any guise.”

The Arewa Consultative Forum (ACF) also support that the ban on open grazing was in the best interest of all Nigerians.

Benue State Governor, Dr. Samuel Ortom, has also dismissed the presidential decision to revive grazing reserves, saying that the reserves, created when Nigeria had a population of 50 million have since been taken over by airports, schools, roads, hospitals and other infrastructure.

Ortom,  blamed the presidency of pushing for the continuation of open grazing and the return of cattle routes of the 1950s and 60s, adding that the presidency’s endorsement of open grazing has emboldened armed herders who lay claim to all land in Nigeria as belonging to Fulani, hence their invasion of farming communities and killing of original landowners.

Pundits have also advised the federal government to be careful not to allow the horrors experienced in Rwanda and Burundi come to Nigeria.

Human rights lawyer, Mr. Femi Falana (SAN), also faulted the presidency and advised the government to study the Grazing Reserves Act of 1964, which provides for the establishment and operation of grazing reserves in the North.

Falana said since there was a popular demand for the proscription of open grazing, efforts should be made to immediately establish ranches.

“It smacks of brazen official impunity on the part of the presidency to have said that the ban on open grazing is of doubtful legality. Last Friday, the Federal High Court ruled that state governments have the power to enact anti-grazing laws,” Falana stated.

There is palpable apprehension nationwide, as the search for solution to the clashes between herdsmen and farmers, which have intensified across the country in recent time, seems not yielding the desired results.

The issues of VAT and Open Grazing have therefore become a widening gulf between federal and state governments. Handling this delicate situation with wisdom is the only thing that can guarantee a smooth settlement.

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