By Lekan Sote
Value Added Tax was designed by two people, independently of each other: Wilhelm Von Siemens, a German businessman, who thought VAT was a way to resolve the cascading problems that arose in implementing gross turnover taxes and sales taxes. Thomas S. Adams, an American, thought it was a better version of the corporate income tax.
VAT, ranging from five to 25 per cent of the price of a product or service, was first discussed as general consumptions tax during First World War. In 1954 France introduced VAT to its West African colony, Ivory Coast.
In 1958 it was introduced into France, where it now contributes about 50 per cent of government revenue. European and other countries, with strong corporatist culture, adopted it from the 1960s. By 2018, 166 of the world’s 193 countries had adopted VAT.
Military Head of State, General Sani Abacha, introduced it into Nigeria with Decree 102 of 1993 that replaced Decree 7 of 1986 on Sales Tax which was administered by states and the Federal Capital Territory.
Most sales taxes are usually paid once, by the consumer, at the final point of purchase. Also, responsibility for VAT is on the consumer, but not until after it has been forwarded from the vendor of the input raw material, to the manufacturer and finally to the retailer who collects it from the ultimate consumer and then pays to the collection authority.
According to Section 1 of Decree 7, “(Sales) Tax shall be chargeable and payable on the goods and services listed in Column A of the First Schedule to this Act at the rates specified in column B thereto, where- (a) a manufacturer or importer supplies such goods to its accredited distributors or agents; or (b) a supplier supplies such services to consumers in the course of its business.”
For the avoidance of doubt, Section 9(1) of the Decree provides that “Any tax collected under… this Act shall be paid to the appropriate State authority on or before the 30th day of the month next following that in which the tax is due.”
In the First Schedule to Decree 7, The Rate of Sales Tax for taxable services are, “registered hotels, motels, catering establishments, restaurants and other personal service… establishments… excluding drinks, is 5 per cent.”
But taxable goods attract sales tax as follows:. 10 per cent for… wine, Liquor and Spirits… five per cent for… Beer, Soft Drinks (including mineral water); Cigarettes and Tobacco; Jewels and Jewelleries; (and) Perfumes and Cosmetics (excluding toiletries).
Other items taxable at five per cent are: “Electrical and Electronics Equipment (Video Recorders, Stereo Sets, Radio and Television Sets, Video Cassettes, Cameras, Airconditioners, Fans; Deep Freezers; Carpets and Rugs (excluding Linoleum); (and) Bottled Natural Water (Excluding Mineral Water).”
And Section 2 of Decree 102 of 1993 provides: “(VAT) shall be charged and (is) payable on the supply of all goods and services… other than those goods and services listed in the First Schedule of this Act.”
Although, Section 4 provides that “(VAT) shall be computed at the rate of 5% on the value of all taxable goods and services….” This was however, revised upward to 7.5% by the National Assembly in 2019.
Rivers State Governor Nyesom Wike threw the spanner in the works, when he queried the constitutional right of the Federal Inland Revenue Service to collect VAT on behalf of the Federation Account Committee. He got Rivers State House of Assembly to enact a law authorising Rivers State Board of Inland Revenue to collect VAT instead of FIRS.
After Rivers State Government approached a Federal High Court in Port Harcourt to ask FIRS to hands off VAT, the court awarded judgment in favour of Rivers State Government. FIRS appealed to the Federal Court of Appeal, which asked all parties to maintain “status quo ante bellum.”
Lawyer and civil society activist, Mike Ozekhome, is of the legal opinion that the “status quo ante bellum” that the Federal Court of Appeal asks to be maintained commenced after Rivers State BIR started to collect VAT. He suggests that the period prior to the order of the Federal Court of Appeal has lapsed and is no more extant.
Lagos State Government got its own State House of Assembly to pass a VAT Law, Section 7 of which, provides that “Lagos Board of Inland Revenue shall: administer and implement the (VAT) Law; account for money collected in accordance with the Law; and do any other thing necessary and expedient for the assessment and collection of the tax…”
Section 4 of that Law however, reduced the VAT collectable by LIRS from the 7.5 per cent imposed by Decree 102 of 1993 and provided that “the tax shall be computed at the rate of 6 per cent of (the value) of goods and services….”
To make known its intention in unambiguous manner, Lagos State Government asked to be joined with the Rivers State Government as co-responder to suit filed by FIRS at the Federal Court of Appeal.
A very desperate FIRS did not wait for the final outcome of the judgment of its own appeal, but approached the Senate chamber of the National Assembly with a “Request for sponsorship of a Bill for the establishment of the Federal Revenue Court and the insertion of VAT under Item 58 of the (Federal) Exclusive List.”
To amplify its prayer, “The FIRS… propose(d) for the insertion of VAT immediately after Stamp Duties under Item 58 of Part II of 2nd Schedule of the 1999 Constitution of the Federal Republic of Nigeria.”
This is contrary to the default position of constitutional lawyers and political theorists who argue that whenever a Constitution is silent on a matter in a federal system, like VAT in Nigeria’s 1999 Constitution, such matter automatically falls under the Residual Powers or jurisdiction of the federating states or regions.
By seeking to add VAT unto the Exclusive List, FIRS is unwittingly acknowledging that the 1999 Constitution never gave it such powers. And it fails to catch the new vision that seeks to reduce the size of the Federal Government.
Also in the proposed bill, “The FIRS also proposes for the amendment of Section 251(b) of Constitution of the Federal Republic of Nigeria (amended) by removing the exclusive jurisdiction of the Federal High Court only on anything connected to Federal tax matters since same would be vested on the proposed Federal Revenue Court.”
Note that the Federal Tax Court that the FIRS is asking for will be an administrative court that reviews decisions made by state actors who perform their statutory duties under the ambience of public law. The danger of administrative courts is not their being specialised courts or separate from the regular general courts, but in that their acts are binding without the consent of the other party to a dispute.
That means that “In determination of your right and obligations, including any quest or determination by or against any government authority,” you are no longer “entitled to a fair hearing within a reasonable time by a court or other tribunal established by law…,” as guaranteed by Section 36(2) of the 1999 Constitution.
Records indicate that Lagos State that contributed N429.203 billion to VAT between January and August 2021, received a remittance of N139.58 billion from the total takings. That means the principle of derivation was ignored, and Lagos State got a little more than 30 per cent of its contribution.
This makes Governor Wike to wonder why Northern states that claim to have more people than their Southern counterparts deliver lower VAT. He is irked by the fact that some Northern states that apply sharia laws against alcoholic drinks do not discriminate when sharing proceeds of VAT from sale of alcoholic drinks in Southern nigerian states.
Curiously, the only response that anyone from the North has made is to merely appeal to the sentiment that Southern states with higher VAT returns should be their Northern brothers’ keepers.
To which the South retorts that the North not always sentimental when they use the number they claim to have when it comes to taking a vote for matters dear to them.
Against all entreaties to allow an increase of the rate to 5 per cent in the Petroleum Industry Act of 2021, the National Assembly insisted on granting only 3 per cent of each settler’s actual operating expenditure of the previous financial year to be paid into a trust fund for the oil producing communities.
To compound matters, the NASS, provided that it is even okay if no member of the host community is on the Board of Trustees or in the Executive of the trust fund. That’s as much as cutting somebody’s hairs in his absence.
When a region insists on taking the fullest advantage of its so-called numbers, to the disadvantage of the region that provides most of the resource in question, and then turns around asking for compassion where only the law, and not the population figures, will apply, it smirks of the machiavellian principle of the end justifying the means.
The English would say you want to eat your cake and have it. To which denizens of the streets of Lagos would reply, “It’s not done. Everything in life should be done in a give-and-take manner, not winner-takes-all. It’s a shortsighted approach.
Railroading NASS decisions to serve the interest of only the majority reminds one of the theory recently espoused by Prof Ayo Ojebode of Department of Communication and Language Arts of University of Ibadan.
He says that whenever a majority uses its numerical strength to push a decision through, without taking judicious notice of the interest of the minority, that amounts to majoritariansm which is a form of political mob rule.
Those who argue that VAT collection in Lagos State is high, partly because the headquarters of the biggest breweries, telecommunication companies and manufacturers of fast moving consumer goods are in Lagos, should be reminded of one thing.
There is an all-time practice whereby the personal income tax of all Nigerian military personnel are recorded as if they were all resident in Abuja, the Federal Capital Territory, no matter their physical location at any given time.
If anyone contested that, Donald Trump, that most controversial of all men who have been President of the United States of America, would have thrown his hands up in the air, and quipped, in his most sarcastic and unrepentant manner, “It is what it is.” Truly, none can argue with realities.
When formally moving the Federal Capital to Abuja, former military President Ibrahim Babangida promised that Lagos State, the most urbanised centre in Nigeria, home to practically all nationalities of Nigeria, headquarters of most of the corporations in Nigeria, and hub of the shipping and haulage business in Nigeria, would enjoy a special status.
That was never to be. The promise has not gone beyond that, promise. None of the subsequent military and civilian governments that succeeded General Babangida’s government lived up to the promise.
Former President Olusegun Obasanjo actually seemed to take delight in describing Lagos as a concrete jungle. He obviously forgot that Lagos State has the most used mass transit system in Nigeria.
Do you know that the Apapa-Oshodi-Oworonshoki-Berger corridor of the Lagos-Ibadan Expfessway is the busiest road in Africa? You can only imagine the degree of abuse and damage that that stretch of road endures every day.
At a time, President Obasanjo even withheld the dues of Lagos State from FAAC because Governor Bola Ahmed defied him and created much needed municipal governments, which were later redesignated as Local Council Development Authorities, to cope with the complexity of managing the Lagos City-State.
Maybe that is why the agitation for restructuring is on the boil.