featured Op-Ed

OBSERVATION: Conundrum And Hullabaloo Over VAT

Byhvzclarence

PublishedOctober 9, 2021

BY ADEMOLA YAYA

VALUE Added Tax (VAT) is an indirect tax levied on goods and services for value added at every point of production or distribution cycle; from raw materials to the final retail purchase as consumers ultimately bear the tax. VAT was introduced in Nigeria in December 1993 via Decree 102 but its implementation began in 1994. In the Decree, VAT is to be administered by the Federal Inland Revenue Service (FIRS) while import VAT is administered by Customs Services. Since its introduction, VAT has become consistent but fastest growing revenue in Nigeria.

In the recent time, however, there have been claims and counter claims as to which level of government should be administering the tax. While the Federal Government via the Minister of Justice and Attorney-General of the Federation, Abubakar Malami, insists that only Federal Government is constitutionally empowered to access the tax, some State Governments have said, ‘No’, they are the ones empowered to administer the tax in their respective jurisdictions. Rivers State fired the first shot by heading toJustice Stephen Pam of Federal High Court in Port Harcourt which gave the State Government, on 9th August, 2021, the right to collect VAT instead of the FIRS and restrained Attorney General and FIRS (1st and 2nd defendants) from collecting VAT in the State. Consequently, the State Assembly had passed a Bill which was accented by Governor Nyesom Wike to become law with inauguration of relevant agencies for the collection of VAT in the State.

FIRS quickly ran to the Court of Appeal to halt the judgement of the Federal High Court, Port Harcourt. In its ruling, the Appeal Court asked the parties involved to maintain “status quo ante bellum” pending the final determination of the appellate court. To an ordinary man, it connotes cessation of controversy and allow what was initially operational before the conflict which suggests FIRS collection of VAT pending final determination. However, notable senior lawyers have knocked the Appeal Court ruling, stating that “FIRS cannot collect VAT as it is a judgement debtor and has been restrained by the Court of Appeal from collecting VAT while the appeal is pending.” Somehow, anyway, the Supreme Court will give the final verdict. It’s just a matter of time.

We must recognise the sentiment of some state governments like Lagos and Rivers who felt that there has always been lack of equity in the sharing formula of VAT. For instance, while Lagos generates about 55 percent total VAT in Nigeria, it is allotted a meagre 15 percent. Research has revealed that most states that contribute lesser VAT percent are mostly allotted larger percentrelative to their contributions. Moreover, states are striving inwardly on how they could increase their Internally Generated Revenue (IGR) to complement theirfinancial challenges and responsibilities. Hence, VAT is one major source. However, generating revenue is one thing, what it is used for is another thing entirely.

Eight Oil-producing States – Abia, Akwa-Ibom, Bayelsa, Delta, Edo, Imo, Ondo and Rivers received N6.589 trillion from the Federation Account between 2009 and 2019 based on 13percent derivation principle with little or no impact on the lives of people in the states, South-South region in particular. In these states, heath facilities are deplorable, no access to portable drinking water with very limited access to electricity, poor education infrastructure among others. Where basic amenities exist are selected oil communities provided by Niger Delta Development Commission (NDDC) or Nigeria National Petroleum Corporation (NNPC) or Oil Companies as part of their Corporate Social Responsibility. The point to be drawn here is that development and better living standard will not come the way of the people through revenue; what is required is production and productivity. We live in a competitive world where relevance is determined by how fast one can produce and package what humanity needs. We are lagging behind in all areas of life and have become a burden than blessing to the global village. We don’t have technical knowhow on how our crude oil is being exploited and explored; all we do is collection of rent and royalty which have taken us far behind.

If States’ Governors have given 10 percent of their dedication, zeal and concern on right to VAT collection to mechanised farming, we would not have remained in this precarious state. What we require is productivity in our areas of choice. Productivity is the efficiency with which firms, organisations, industry and economy as a whole converts input (Labour, Capital and Raw materials) into output. It measures how efficiently we use our resources to produce. It is the generation and application of technology and knowledge (Innovation) applied that drive the form and level of productivity and growth. If we apply this to mechanised farming alone, leaving alone our various endowed natural resources in every state in Nigeria, our vast youth population will be productively engaged and much more taxable, values will be added, hunger and starvation will vanish and crimes and criminality will be drastically reduced with accompanied better life for the mass majority of the people. It’s time we constructed new path to real development instead lagging behind and pretending to be very busy, searching for what is not lost in the first instance.

If I may paraphrase Pat Utomi, Professor of Political Economy, “Central to the problem of Nigeria is a failure to understand between production and revenue and what is required for the quality of life that people live. We fight each other over revenue, starting war, all kinds of things over sharing, structure and restructuring. When I listen to these conversations, I am struck by power of ignorance. Ignorance is a very powerful thing. People are rushing to what will make them poor. Go through history. No nation, no group of people became rich through revenue. You become rich through production. It doesn’t matter how much money you get. Whether they are donations; whether it is coming from oil, from diamond or from anything, you’ll be poor!”