FIRS: Why We Are Against States’ Collection of VAT, Says It Works Only At National Level And Not At Sub-National

The Federal Inland Revenue Service (FIRS) yesterday explained its opposition to the administration of Value Added Tax (VAT) by states in the country, saying it might stifle businesses and investments.

The federal agency insisted that the decision of the Federal High Court to grant powers to states to administer VAT would make it difficult for businesses to thrive.


This is just as it was gathered that the FIRS recently wrote to the National Assembly for an amendment of the constitution to accommodate VAT in the Exclusive Legislative List of the 1999 Constitution.

The development followed rising agitation by some states to collect and utilise proceeds of consumption tax, after Rivers State secured victory in court on the matter.

Notwithstanding, the Rivers State government announced the commencement of full implementation of its VAT law.

On its part, FIRS has maintained that the decision of the Federal High Court to grant powers to states to administer VAT could be counterproductive.

The Group Lead, Special Operations Group, FIRS, Mathew Gbonjubola, insisted that there was nowhere in the world, where the administration of VAT was done at the sub-national level, adding that the service cannot afford to devolve such powers to states.

Speaking during a media briefing, he said contrary to speculations, the FIRS administers the consumption tax on behalf of the three tiers of government and not for the federal government alone.

He added that revenue from VAT was administered under an arrangement that allows the federal government to collect 15 per cent, states 50 per cent, and local government 35 per cent. He pointed out that the existing arrangement allowed states and local governments to take about 85 per cent of VAT proceeds.

Gbonjubola stated: “The VAT is not paid to the federation account but to VAT pool account for distribution to the three tiers of government. It is after the sharing that the portion of the federal government is paid to the Consolidated Revenue Fund Account.

“VAT works only at a national level but not at a sub-national level. There is no country in the world where VAT works at the sub-national level.”

He said the VAT Act differentiated between the Input and Output VAT, explaining that in the former, tax is paid to suppliers on the purchase of taxable goods and services, while output VAT is the tax received from customers on the value of taxable goods and services sold or rendered.

Gbonjubola further explained that the VAT Act allowed taxpayers to offset their input VAT (Allowable Input VAT) against their output VAT, to the extent that such input VAT only related to such goods that were purchased or imported for resale or form the taxpayers’ stock-in-trade used for the production of new products on which output VAT would be charged.

He said where the output VAT exceeded the recoverable input VAT; the taxpayer was expected to remit the excess to the FIRS.

In the instance where the input VAT exceeded the output VAT, he explained that taxpayer would be entitled to a refund of the excess after following the due process as contained in the FIRS Establishment Act.

But with the decision of some states to go ahead with the implementation of the court judgement, Gbonjubola said such refund might not be possible, because the administration of VAT would be done by different tax authorities in the states.

His words, “As to the incidence of VAT, VAT is practiced on an input and output mechanism. What it means is that for a business either importing or buying products, that business will pay VAT either at the port if it is importing or with the manufacturer if it is buying from a local manufacturer.

“And when that business pays VAT, it is accounted for that business as an input tax, such that if it begins to sell in any part of Nigeria, and charges VAT from its own customers, it is able to rescue the importers payment either by port if it is an imported item or to the manufacturer if it was obtained from local producers.

“And this works only at the national level, VAT can’t work at the sub-national level and there is no country in the world where VAT works at a sub-national level. This is because the VAT depends on the input-output mechanism

“For instance, if a business person buys an item in Osun State and paid VAT, takes the goods to Sokoto State to sell, remember this business person had paid VAT when purchasing
the product in Osun State.

“So, when selling in Sokoto State, he will be charged VAT and by the operation of the input-output mechanism, this business person will deduct the input VAT payment in Osun state, from the output charged in Sokoto State, and remit any difference to the relevant tax authorities, in this case because there is a single tax authority handling VAT, it is the same authority that will receive the VAT in Osun and Sokoto states.

“It is easy to work out the input-output mechanism, businesses won’t be short-changed; there is no issue of consumers having to pay VAT more than once.

“However, if this is operating at a sub-national level, it will mean that when businesses are paying VAT at the state level, the business would have to pay VAT twice in two different states.”

FIRS Seeks to Move VAT to Exclusive Legislative List

To stem the agitations by state governments to be the ones to collect VAT, the FIRS had written a letter, dated July 1, to the National Assembly for the sponsorship of a bill to amend the 1999 Constitution and place VAT administration on the Exclusive Legislative List, as well as establish a Federal Revenue Court (FRC) to sit over tax-related disputes.

The letter was written by its Executive Chairman, Mr. Muhammad Nami, to Deputy Speaker, House of Representatives, Hon. Idris Wase, who also doubles as Chairman, Special Committee on Review of the Constitution.

In the letter titled, “Request for Sponsorship of a Bill for the Establishment of the Proposed Federal Revenue Court of Nigeria and the Insertion of Value Added Tax Under Item 68 of the Exclusive Legislative List,” was dated July 1, 2021. The letter was written to the National Assembly while the FIRS was still contesting a suit filed on the collection by Rivers State.

Nami had highlighted the increasing pushback by states to collect and retain the VAT proceeds in their respective states.

Specifically, the FIRS proposed the insertion of VAT immediately after Stamp Duties item 58 Part II, 2nd schedule of the 1999 Constitution, as amended. It expressed concerns that the number of tax cases was increasing annually at both the Federal High Court and the Tax Appeal Tribunal

As a result, Nami said there was an urgent need to establish FRC to speed up the resolution of the tax disputes.

In the letter, the FIRS is pointedly proposing an amendment of Section 251 (1)(1b) of the 1999 Constitution, as amended, by removing the exclusive jurisdiction of the Federal High Court only on anything connected or related to federal tax matters since same would be vested on the proposed FRC.

He said the exclusive jurisdiction of the proposed FRC shall include adjudication of tax disputes arising or connected to the federal tax laws, including Company Income Tax Act (CITA), Petroleum Profit Tax Act (PPTA), Personal Income Tax Act (PITA), Capital Gains Tax Act (CGTA), STAMP Duty Act (SDA), Value Added Tax Act (VATA) and Taxed and Levies (Approved list for collection) Act as well as other laws, regulations, proclamation, government notices or rules related to these Acts.

In addition, the FIRS proposed for the insertion of Section 254G to 254L in the 1999 Constitution to provide for the establishment of the FRC, the appointment of Chief Judge for the proposed court, power to make rules for the proceedings of the FRC and the appointment of judges of the court as well as craving for the exclusive jurisdiction of FRC on federal tax matters.

The service boss said the proposed court would among other things provide both the tax authority and taxpayers a platform for quick resolution of tax disputes and invariably increase tax revenue generation for the federal government.

Nami also said though the judges of the Federal High Court that presently handled tax matters were well grounded in the general practice of laws in the country, there was need for tax matters to be handled by individuals with cognate experience in taxation and tax practices for effective adjudication of tax disputes in Nigeria.

According to him, “Tax disputes are one of the fundamental factors that impede tax revenue generation in Nigeria, hence the need to establish a globally accepted practice of mechanisms for tax dispute resolution in Nigeria.”

He pointed out, “The number of tax dispute cases are increasing yearly at both the Federal High Court and the Tax Appeal Tribunal. There is, therefore, an urgent need for the establishment of the Federal Revenue Court to speed up the resolution of these tax disputes.”

He argued that the success stories of the tax appeal tribunals could be replicated better and more effectively if the FRC was established.

Nami stated that there were currently over 156 disputed tax liability cases across the six geopolitical zones, valued at over N379.43 billion, including $3.38 billion and €800,500.00.

The service said it intended to take advantage of the on-going constitution amendment exercise to realise its

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