Experts explain how the collection of VAT by states will work

As the dispute between the Federal Inland Revenue Service (FIRS) and state governments over the collection of value-added tax continues, tax experts have defined the terms and / or issues that would define the operation of the administration of VAT in the States.

That’s when manufacturers, tax experts and industry watchers say they are planning a multiple tax system that would be complicated if the collection were left to the states.

With the exception of the few challenges identified in the possibility of VAT collection by states, experts said it would be preferable for states to be in charge of collecting taxes for development purposes.

They expressed concern, however, that allowing states to collect VAT would have a negative impact on the ease of doing business. They also expressed concern about the ability of states to collect taxes efficiently; the problems of a lack of policies to resolve the legal problems of border controls and inspection at destination without increasing the payment burden on taxpayers.

Tax advisor Dr Fredrick Obasi said: “It is not tax administration that is important, but the ability to collect. The right thing to do for development purposes is to allow states to collect taxes, ”he said.

But can they collect? Most states do not have the capacity.

On the expected controversy that could emerge if states were allowed to collect VAT, Dr Obasi said the law took into account how this should be done.

“It’s a consumption tax. You pay at the point of purchase or consumption. VAT legislation and compliance are not ambiguous. This is an entry / exit VAT. When the return is higher, you don’t pay because you would have added something more. The inlet must always be greater than the outlet.

“The general opinion is that most states don’t even have the will.

“If states have the capacity, they should be allowed to collect. Nigeria will be better off because development will be closer to the masses; and the administration of the collection will be easier because the taxpayers will be known individually, ”he said.

But lawyer Lawrence Emeka Ihebie has a slightly different idea of ​​how it should work, in a Supreme Court scenario declaring that VAT collection should be done by the respective states.

He said in an interview that “it is going to be difficult and it will require cooperation between states.”

According to him, the only area of ​​challenge lies in the collection of input and output VAT. Output VAT is paid at the time of resale of a product, which implies that the VAT on a product sold for the second time must be less than the amount of VAT paid at the first point of purchase of the product.

The fear is that some states still want to collect the full value of 5% VAT on a product where VAT had been paid in full, regardless of the place of payment.

The law provides that you withdraw the value of the 5% VAT paid at the first point of purchase and then deduct it from the input VAT on the product at the second point of sale of the product.

Ihebie’s view is that the federal government should collect VAT on a business transaction that occurs between states (interstates). The law states that when a transaction involves two states, only the federal government has the power to legislate. This was the judgment of the Supreme Court in the Aberuagba case against the Ogun State Attorney General.

There are reports of people paying stamp duty in one state and they are obligated to pay stamp duty on the same product in another state.

Experts also foresee a major challenge in filing tax returns for individuals and businesses that have operations beyond a state.

In the event that states were allowed to collect VAT, individuals would be required to file income tax returns in two or more states on a particular product or service. For example, a business that operates in all states of the federation will then be required to maintain tax returns in each of the states.

“It will reduce the ease of doing business and paying taxes. It will be difficult to determine who will be entitled to a certain VAT when this occurs in an interstate border, ”said lawyer Ihebie.

However, he said, states should be allowed to collect taxes, adding that this would allow governors to start attracting business.

“You don’t solve a problem by running away from it. So when these issues arise, states propose a policy or amendment that inputs paid in one particular state can be recognized in the other state. The federal government could also collect VAT and share it equally among the states concerned.

“All the issues raised are issues that can be resolved. This could however increase the burden on taxpayers, ”said Ihebie.

Organized private sector operators have also raised concerns that some states may increase VAT from the current 7.5% to 10% once they start collecting, further disrupting the already existing tax system. complicated country.

A former LCCI chief executive, Dr Muda Yusuf, said state collection of VAT would surely lead to complications and overlaps that could be detrimental to business interests.

He argued that the VAT conundrum had created great uncertainty among investors “so we are dealing with conflicting and overlapping instructions from the states and the federal government.”

He said it was certainly not the best for investor confidence, saying that resolving the VAT controversy should be both legal and political.

He affirmed that it is important to have commitments and discussions between the main actors and participants.

“This should, however, be without prejudice to the central issue of fairness and justice in the distribution of VAT proceeds. The biggest problem is actually the question of fairness, ”he said.

For his part, the National President of the Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, said that the idea of ​​state governments collecting taxes means that enough funds will be allocated to the construction of a structure that will handle the collection of VAT, declaring that “we don’t need it in an economy that goes down and tilts”.

He explained that VAT collection will not provide any benefit to business owners due to the overlap in VAT collection from businesses with offices in different states, which could cause businesses to pay multiple taxes.

He said harmonizing tax payment would become very difficult as business owners would bear the brunt of paying more tax on vatable products.

“Apparently this will see state governments charging different rates from 7.5% to 10% while other states might even charge more, and how do they start to harmonize the payment of the tax.”

The boss of ASBON said that the CAMA law of 2020 which was enacted exempts small businesses with annual turnover of 25 million naira and less from paying tax, adding that the CAMA law belongs to the federal government and when it comes to states collecting VAT. , they can say that they do not recognize the law and that means that small businesses in difficulty will start paying VAT.

He further argued that multiple tax payments will occur as manufacturers are likely to pay more tax in their manufacturing states, with state government officials cracking down on their distributors for the tax and, in large part, if the government state is successful, this will lead to negative consequences. small businesses.

“It is undeniable that for an economy to survive, we have to develop the small business sector and that is why some of us are clamoring that the VAT policy does not fly away, otherwise it will affect us negatively,” he said. declared Egbesola.

An industrialist urges FG and the States to dialogue on VAT

Meanwhile, an industrialist, Kayode Ojo, called on the federal and state governments to come to a roundtable and discuss the controversial issue of who collects value added tax (VAT).

Ojo said the two levels of government should not allow the issue of VAT collection to create tension in the country.

Speaking on the issue, the head of the All Progressive Congress (APC) in Ekiti State said the issue should be critically examined by the parties involved in order to reach a reasonable compromise that will benefit all.

“My position on VAT, which is a consumption tax, is that the federal government and the state government should come together and have a dialogue on how it will generate the maximum benefit for everyone.

“It’s not a universal cap; a lot of studies should be done to come up with how it should be administered, ”he said.

Ojo said he was very sure that the two warring parties could come to a compromise that would be favorable to all parties.

The frontline politician stressed the need to build on the harmonious relationship that exists between the two levels of government to resolve the controversial issue.

“Let’s remember that we are the ruling party, the All Progressives Congress, so I don’t expect the VAT issue to degenerate into chaos.

“The committee set up by the federal government and the states should parley, ‘jawbone’ and see how they will generate maximum benefit for everyone.

“Both sides should come up with the best option that could be right for the federal government and the state government and I’m sure a compromise can be found on the issue.”

LEADERSHIP Weekend reports that there is an ongoing legal battle between the Rivers State government and the Federal Inland Revenue Services (FIRS), an agency of the federal government that has the right to collect VAT.

Lagos State also recently domesticated the collection of VAT after enacting a bill to this effect.

The Southern Governors Forum, at a meeting in Enugu State last week, also took a common position in supporting the collection of VAT by states.