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 Matters arising over VAT collection

Matters arising over VAT collection


Again, the Nigeria tax environment has been given the shock treatment. A judge of the Federal High Court has ruled that the federal Inland Revenue Service (FIRS) can no longer collect and administer Value Added Tax (VAT) in Rivers State and by implication in other states of the federation. Assistant Editor Nduka Chiejina presents the views of two authorities on the judgment and what it means for VAT collection in the country going forward.

The judgment handed down by Justice Pam of the Federal High Court Port Harcourt stripping the FIRS of the duty of collecting Value Added Tax (VAT) and Personal Income TAX (PIT) has generated controversies with experts and professors pitching their arguments for and against the ruling.

Both sides agree that the judgment is in favour of and upholds the principle of true federalism which allows federating units the latitude to pursue their development with little or no interference from the government at the centre.

Justice Pam in his ruling said the constitutional powers and competence of the Federal Government was limited to taxation of incomes, profits and capital gains, which did not include VAT or any other species of sales, or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the Constitution.

The court agreed with the Rivers State government that it was the state and not FIRS that was constitutionally entitled to impose taxes enforceable or collectable in its territory of the nature of consumption or sales tax, VAT, education and other taxes or levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended.

The court, also declared that the defendants FIRS and the Minister of Finance were not constitutionally-entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on the residents of Rivers and any state of the federation.

The Rivers State government pleaded with the court to declare that, by virtue of the provisions of items 7 and 8 of the Part II (Concurrent Legislative List) of the Second Schedule of the constitution, the power of the Federal Government to delegate the collection of taxes could only be exercised by the state government or other authority of the state and no other person.

The Lead Lawyer to the state government, Donald Chika Denwigwe (SAN), told reporters that the case was all about the interpretation of the constitution in respect of the authority of the governments at the state and federal levels to collect certain revenue particularly VAT.

Speaking on the implication of the judgment, Denwigwe said: “In a summary, it is a determination that it is wrong for the Federal Government to be collecting taxes which are constitutionally reserved for the State governments to collect. So, in other words, the issue of Value Added Tax (VAT) in the territory of Rivers State and Personal Income Tax should be reserved for the government of Rivers State.”

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