The FIRS on Thursday clarified that the 36 states and 774 local governments get 85% of VAT collections monthly while it collects 15% being the collection expenses approved by the governments as controversies between some states and it over Value Added Tax (VAT) collection rage on.
The federal revenue agency made the clarification in a document by its Group Lead, Special Operations, Mathew Gbonjubola,
A the Federal High Court sitting in Port Harcourt had, a fortnight ago, ruled that the Rivers State Government, rather than the FIRS had the constitution right to collect VAT and related taxes in its domain.
In his ruling, the president judge, Justice Stephen Pam of the Federal High Court, Port Harcourt maintained in suit No. FHC/PH/CS/149/2020 filed by the Rivers State Government that the FIRS had no authority under the constitution to collect VAT and personal income tax (PIT) in the state.
Justice Pam declared 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 FIRS to demand and collect taxes was limited to taxation of incomes, profits and capital gains, excluding 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).
Since the judgment on which the federal revenue agency had since filed an appeal, the Rivers State Government has commenced with preparations to commence VAT collection in the state.
To enforce the judgment, the State governor, Nyesom Wike, had signing into law a bill empowering the state to collect VAT while other states, including Lagos, are making similar legislative moves to legalize VAT collections in their domains.
Making clarifications on FIRS’ stance over the raging controversy, Gbonjubola traced the history of VAT, which he said was established through the instrumentation of the VAT Bill of 1993 passed into law in 1994, stressing that in line with the law that established VAT, the FIRS is the only legitimate authority mandated to administer and collect VAT.
According to the Director, the VAT Act, upon the advent of the current democratic dispensation, abrogated all sales income tax since it was enacted being an Act of the National Assembly till date.
He further clarified: “Till today, VAT is administered on behalf of the Federation and not on behalf of the Federal Government contrary to the misconception in some quarters.
“By implication, what it means is that VAT is administered on behalf of the three tiers of the government in Nigeria, made up of the 774 local governments, 36 states and the Federal Capital Territory (FCT) and the federal government,” Gbojunbola maintained.
He further pointed out that the revenue from VAT was being shared by the three tiers of government based on approved provisions.
Citing the existing revenue sharing formula approved the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) to defend the FIRS’ position on the VAT, he explained that in line with the formula, 35% of all revenue collections is shared monthly by the 774 local governments, 50% by the state governments, while 15% goes to the federal government.
The tax administrator clarified: “In actual effect, 85% of VAT collected by the FIRS goes to state and local government, with only 15% to the federal government.”
Expatiating further on where the VAT revenue is being saved, Gbonjubola said all revenues realized from VAT are usually paid into the VAT pool account in the Federation Account and that distributions to the tiers of government are made after the approval by the Federation Account Allocation Committee (FAAC).
the FIRS Group Lead said VAT was applicable on an input-output mechanism basis, for either import or products buying business, pointing out that in either case, VAT would be paid either at the port, if it was importing, or to the manufacturer, if it was buying from a local manufacturer.
In addition, the tax administrator explained that when a business pays VAT, it would be accounted for that business as an input tax such that when it begins to sell in any part of Nigeria and charges VAT to its own customers, it would be able to recoup the input tax paid either at the port, if it is an imported item, or paid to the manufacturer, if it is an item bought locally, and that this works only at a national level.
Gbojubola finally submitted that VAT administration cannot work at sub-national level because VAT depends on the input-output mechanism and there is a single tax authority handling it, which is the FIRS.
