5th October, 2021
The knives are out between the Federal and State governments in Nigeria over the Value Added Tax (VAT) charged on goods and services. A battle started by Lagos and Rivers State government now has more states throwing their hat into the ring –against the states.
Yesterday the governments of Adamawa, Plateau and Kaduna states were reported to be prepared to join the Federal Inland Revenue Service (FIRS) in its appeal against the judgment of the Federal High Court in Port Harcourt that gave power to Rivers to collect and retain VAT.
However, now that the rank of the anti-VAT for states is swelling up, there is a man who can testify in court to help the states, now that all Nigerians wait with baited breaths for the verdict of the Supreme Court. The man is Emmanuel Ijewere, who chaired the defunct Modified Value Added Tax Committee that berthed VAT Nigeria.
It was former military President, Ibrahim Babangida who appointed him to head the body. Ijewere knows the genesis of VAT that it belonged to states and not the Federal Government which, along the line, elbowed the states aside and appropriated it.
He advised that the country must go back to “how Babangida government set up my committee.” He said in a September Channels interview that what existed then was sales tax in a number of states. “There was no particular rule as per the rate of sales tax they were charging. There was no uniformity. It was a thing that created confusion.”
The Federal Government, according to him said, therefore, let us standardise it. “One thing we were told was that whatever money was collected in a state belongs to that state. And the Value Added Tax Commission would retain 5 per cent for administrative purposes on behalf of that state. But somewhere along the line, the Federal Government took it over, pushed the states aside and took a big chunk for itself. That defeated the whole thing. It now turned out that the states that are generating a lot more VAT, are not getting a commensurate amount of money for their own economic activities. That’s the unfair part of it. That’s the big regret I had. Sales tax was a state tax. VAT belongs to the states. That is the more VAT a state pays, the more money should come to it.”
*Watch the interview here
He said further: “I believe any time is a good time to do so as long as it is done with the original motive. The most efficient system of taxation is Value Added Tax. Your income is taxed by the rule of the thumb. Government sits down and says this is the percentage. You have no say in it.
“But in VAT, you have a say in the tax you pay. If you earn your income and you eat at buka or restaurant; you go and sit down there all year round. You will pay no Value Added Tax. You have a choice. However, you go and eat in a hotel, you pay because there is VAT, according to the law. On top of that is when you pay VAT it is from your own activity.
“It is not a penalty, because the more you earn, in terms of Pay As You Earn (PAYE) the more you pay. To some people, they will say it is punitive- if I work harder, I earn more, I pay more. For social reasons, the more you earn the more you pay, inn terms of PAYE.
But in Value Added Tax, the good thing about it is that, you should try and make sure tht any time you raise VAT, you reduce the PAYE.
“In other words, the thinking is that there is a quantum of money you earn. That quantum of money, to you, is to decide how you spend it. The more government is taking from that money of yours, the less your PAYE should be. That was the thinking originally.
“We must also go back to how Babangida government set up my committee. What happened then was that there was sales tax in a number of states. There was no particular rule as per the rate of sales tax they were charging. There was no uniformity. It was a thing that created confusion.
“The government said, therefore, let us standardise it. One thing we were told was that whatever money was collected in a state belongs to that state. And the Value Added Tax Commission would retain 5 per cent for administrative purposes on behalf of that state.
“But somewhere along the line, the Federal Government took it over, push the states aside and took a big chunk for itself. That defeated the whole thing. It now turned out that the states that are generating a lot more VAT, are not getting a commensurate amount of money for their own economic activities. That’s the unfair part of it. That’s the big regret I had. Sales tax was a state tax. VAT belongs to the states. That is the more VAT a state pays, the more money should come to it”