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Feed-bottle federalism erupts in VAT war


An Ogoni man from Rivers State, it would appear, was recently used to attack the governors of Rivers and Lagos states because of the ongoing cause célèbre over who should keep Value Added Tax (VAT) proceeds.

The Federal Government has been collecting and sharing such revenue among Nigeria’s federating units.

Gov Nyesom Wike had assented to the bill passed by the state’s parliament, enabling the takeover of VAT proceeds. Now, the latter is frowning at the development, especially as Lagos State, one of the top internal revenue generators, has joined the fray. Guess who the FG would rather use to attempt to neutralize the Rivers State’s argument? …A young man from Rivers, Ajuri Ngelale. But did he do a good job of his ‘brief’? Your guess is as good as mine.

The Senior Special Assistant to the President on Public Affairs attempted to knock the man he called his governor for being allegedly tribalistic and aggressive in his pursuit of the VAT takeover agenda.

Speaking as a guest on Channels Sunrise Daily breakfast show, Ngelale argued that the Federal Government has not been taking the money made in the Niger Delta to Northern Nigeria.

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While assenting to the VAT law, Gov Wike, also a lawyer said a judgment of the Federal High Court in Port Harcourt sufficiently addressed the illegality perpetrated over time by the Federal Inland Revenue Service (FIRS). He pointed out that when FG agencies are allowed to illegally demand and collect taxes meant for states, they strangulate the states financially and turn them into beggars.

Wike did not just stop at signing the VAT law. He also signed the Open Rearing and Grazing Prohibition Law No 5 of 2021 as well as the Child Rights Amendment Law No 2 of 2021. Others are the Residents Registration Agency Law No 6 of 2021 and the Naming and Renaming of Infrastructure Law No 3 of 2021.

But Ngelale, who said he hails from Rivers State, flayed the governor over his alleged ethnic posture, saying that VAT collection by FIRS is about “harmonized tax policy” to make businesses easy for Nigerians. He warned that VAT collection by states would lead to double taxation, which could make survival difficult for business owners.

Making a very strong argument to back the action of Rivers State, Wike cited examples. The state, and he is in a better position to know, awarded contracts to companies and within a month, paid over N30 billion. He argues that it is from such contracts that 7.5 per cent would now be deducted and given to FIRS, something he describes as a grave injustice.

“Rivers State Government has never received more than N2 billion from VAT at the end of the month,” Wike said, adding, “So, I have contributed more through the award of contracts and you are giving me less, what is the justification for it?”

The Federal High Court, in its ruling on suit No. FHC/PH/CS/149/2020 held that the Rivers State Government had the powers to collect VAT within its territory. FIRS prayed the court to stay execution on the judgment, but Justice Stephen Pam, presiding, rejected the application because granting it would negate the principle of equity.

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While they were still at it, Lagos State House of Assembly followed suit with a bill empowering the state to collect and keep VAT proceeds.

The law to impose and charge VAT on certain goods and services has since been signed by Gov Sanwo-Olu on September 10, 2021. On the same day also, the Lagos Government asked to be joined as a respondent alongside Rivers State in the appeal filed by FIRS against the judgment of the Federal High Court, Port Harcourt, although the case was adjourned by Justice Haruna Tsamani of the Appeal Court to September 16 for hearing, with all the parties asked to maintain the status quo.

On September 16, however, the Abuja division of the Court of Appeal reserved a ruling on the application filed by the Lagos State government to be joined in an appeal by FIRS.

It is understandable why Lagos and Rivers are at the forefront of this agitation as the two generate the bulk of the monthly VAT in the country but get about 20 per cent of the money made through federal allocation.

Against the backdrop, one can see where Wike is coming from while lamenting the injustice in the distribution of federal revenue and saying that Rivers money is not for Abuja people.

VAT is a consumption tax paid when goods are purchased and services are rendered. It is charged at a rate of 7.5 per cent.

But speaking on television last Monday, September 13, 2021, the president’s aide argued that the Federal Government also makes contributions to the generation of VAT in the country, noting that Rivers, Lagos, and other states do not generate VAT by themselves.

He disagreed with the notion that states are by themselves generating VAT en masse and the Federal Government is trying to hijack the money. He said in 2020, for instance, the nation generated about N1.5 trillion in VAT with about 60 per cent of it coming from imports at the ports, whose infrastructure is not state government-controlled.

Besides the tax revenue from imports, he would remind that second to Lagos is Abuja with about N202 billion collected, the reason being that Abuja is the site of federal ministries, departments, and agencies and a huge bulk of that collection comes from VAT on contracts.

Ngelale inferred that the collection of VAT by the FIRS should be encouraged because it is perfecting the union of Nigeria.

In a normal setting, the above position of the federal government would be highly laughable. What stops Abuja from doing the same way Lagos and Rivers are asking to do? Why is the federal government scared of any talk that will result in fiscal federalism?

The likes of human rights lawyer, Ebun-Olu Adegboruwa (SAN), would, however, hail Govs Wike and Sanwo-Olu for championing the agitation in the country, which indeed is a form of restructuring. If successful, it will mark the end of what has come to be known as “feeding-bottle federalism and Abuja financial pilgrimage.”

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For long, Nigerians have called for equity and justice in our lopsided federalism. Rivers State, according to Wike, generated N15 billion VAT revenue in June this year, but got N4.7 billion in return, while Kano generated N2.8 billion in the same month and got the same N2.8 billion back.

Similarly, N46.4 billion was collected from Lagos State in the same month but the Federal Government gave Lagos N9.3 billion. How does injustice grow any economy? On the other hand and despite benefitting from proceeds of alcohol sale through the Federation Accounts Allocation Committee (FAAC), Kano State Government, for religious reasons, in 2020, and in what is a regular, destroyed 1,975,000 bottles of beer worth over N200 million in just one weekend. The products were confiscated in Kano and destroyed in public.

The value of destroyed alcoholic beverages, according to reports, represented 7.5 per cent of the state’s September Gross VAT allocation. In other words, you destroyed other peoples’ wares and still have them contribute to your existence! Why?

While Kano might have openly destroyed the products, many northern states have penal codes prohibiting alcohol in line with Sharia law. They mostly insist that consumption, sales, and distribution of alcohol are forbidden by Sharia.

While no one should begrudge these states for their religious or cultural beliefs, where is the justice if VAT collected from the sale of same forbidden products from other states is largely given to those that destroy and even jail those in the business?

The argument here would be why states that destroy a certain commercial good or service should receive VAT made on that good or service. But the Nigerian story is different. The good side of the story, though, is that the conversation on the devolution of power and resources appears to be growing louder.

The good news also is that states are considering spending their VAT in their states. The bad news, nonetheless, is that while oil-rich states and a very few high VAT generating ones may seem to enjoy their own money more, the weak states will grow weaker with the inequality of states getting stark in a situation that will not favour the federal government.

So, the entire FG paraphernalia will likely fight this new value-added trouble to the teeth. And either by book, hook, or crook, it will not let the states have their way. But it can begin to do something to increase the productivity level of states, especially those not doing well in this direction.

The feeding-bottle federalism and Abuja financial pilgrimage must stop, for who knows, the Lagos and Rivers funds may someday stop flowing.