While many Nigerian states are consulting with the Federal Government (FG) through the Federal Inland Revenue Service (FIRS) on the collection of value added tax (VAT), the stage is set to restructure the Nigerian federation to from the current unitary system. Recently, the government of Rivers State obtained, by a judgment of the High Court, the right to collect VAT in its State of the Nigerian Federation. Other states like Lagos, Ogun and Oyo have joined an appeal to the Supreme Court by the FG.
Recall that the VAT was introduced in Nigeria under the military regime of General Sani Abacha. So it was by military decree. The FG collected it at 5% of sales value, although there was an unsuccessful attempt to increase it to 10% in 2007. However, except for the 2019 finance law which increased the rate 7.5% VAT and another 2020 finance law, there has been little legislative oversight of the VAT law. Thus, this question is constitutional, on whether FG has the power to collect such matters in a Federal Republic, when such invoices are collected by States in federations such as the United States, Canada and the Republic. Federal of Germany.
Although the VAT law provided for a 15%, 50% and 35% sharing formula for federal, state and local governments, on the basis of a derivation formula, some states like Lagos have been adversely affected by this allocation formula. While Lagos contributes over 55% of the pool, it receives less than 10% of the pool. In a federation like we are in Nigeria, Lagos should retain 50 percent, leaving the rest to FG to use as it sees fit. The idea of ââsharing money with the LGA is absurd in a federation. Federalism like democracy is an academic subject that must be studied and applied. This is why ignorance is a major leadership problem in Nigeria.
The legality of the VAT law has elicited different responses from lawyers; most of these opinions focus on the merits of VAT law in the doctrine of covering the area to be superior to state laws. Thus, the question in dispute is whether the FG has constitutional powers to impose VAT on states. Federalist lawyers claim that FG does not have the power to enact VAT law under the 1999 Constitution. The judgment appealed to the Supreme Court ruled that FG is only empowered ” to legislate, impose and collect taxes on stamp duties, income, profits and capital gains, as they appear in articles 58 and 59 of part 1, second annex of the law of 1999. Constitution .
The Court also ruled that these provisions should be interpreted so as to exclude other types of taxes such as VAT. The court decisions have clearly indicated that the power to impose VAT on states does not fall within the competence of the National Assembly. Thus, VAT is a residual matter falling under the legislative and administrative competence of the States. Historically, VAT was introduced as a tax by Decree 102 of 1993. The tax became operational via Decree 7 of 1996. But the Constitution of 1999 ushered in democracy in Nigeria. and all decrees have been converted into acts deemed adopted by the National Assembly. But close examination revealed that FG did not have the power to legislate on sales tax / VAT.
There was an omission of these powers of taxation in the previous Constitution of 1979 although the Constitutions of 1960 and 1963 provided for the imposition and collection of sales taxes by the Regions (States) and the FG. And VAT has been imposed and administered centrally since 1999. Where there is no constitutional basis for the federal VAT administration, there is no basis for mistakenly believing that FG can collect VAT. on imports into ports. As a federation, fiscal federalism allows taxing powers for each level of government.
In the absence of a law enabling the FG to collect VAT, it is now up to the States to start collecting VAT in their areas. As I said earlier, there are no federal sales tax laws in countries like the United States, Brazil, India, and Canada. Sales or VAT belong to states, regions and local governments. The need to operate a true federalism rests with the States. Where the FG refuses to back down, states should enforce its laws and ignore the FG. The VAT issue is only one of the areas where states are showing timidity rather than courage in imposing federalism.