Analysts: Lagos Major Beneficiary of Rivers Court Ruling on VAT, Responsible for 70% of Collection Across Nigeria

Nume Ekeghe

Following the ruling by a Federal High Court sitting in Port Harcourt, Rivers State, stating that Rivers State Government should collect Valued Added Tax (VAT) and Personal Income Tax (PIT), analysts have noted that Lagos would be the major beneficial of this ruling.

Fiscal Policy Partner and Africa Tax Leader at PwC Mr. Taiwo Oyedele, in an interview with THISDAY, noted that the practice of the federal government collecting VAT and PIT on behalf of states has been an ongoing practice since states didn’t have the capacity to collect personally.

However, he pointed out that with the complexities involved in collecting VAT state by state, the FG will allow the ruling to stand.

Oyedele added that if states collect personally, Lagos state would be the major beneficiary of the ruling adding that 70 per cent of VAT collected nationwide are of Lagos origin.

He said: “Based on the constitution, consumption tax belongs to the states and I don’t think that anyone is debating that. So, what happened in 1993 when the VAT law was introduced was the understanding that the Federal Government (FG) had the capacity to collect. At the time, even Lagos state did not have the capacity to collect. So, FG was only collecting on behalf of the state and then keeping a percentage of the state to cover the cost of collecting. So, we can debate on whether the percent is high or not and that is why they only keep 15 per cent and 85 per cent goes to the states and local governments.”

“We have also had different cases in the past including up to the Supreme Court which was between Lagos state and Federal Inland Revenue Service (FIRS) and it was a debate between VAT and consumption tax. And the Supreme Court said VAT law has covered the fees and therefore Lagos state should not introduce consumption tax. Now even though this is not the same, but they are related.

I”f you think of a law like personal income tax, it is a state tax and no one is debating it with them to collect it but the law was centrally enacted. So, a way, I see VAT playing out the same way. Centrally enacted maybe at some point states would collect it themselves but at the moment, FIRS is collecting on their behalf, ”he said.

At the moment, he said the hopeful winner from the latest development would be Lagos state.

“I don’t think any other state would make more money as of today from collecting their VAT than what they are sharing from the Federation. The reason is very simply, there is customs VAT that is collected by customs on behalf of FIRS, and that accounts for somewhere around 12 to 15 percent of VAT and that is a VAT no state would be able to lay claims too. Also, maybe 60 to 70 per cent of the nation’s VAT is generated in Lagos. This means all the other states are barely contributing 30 per cent.”

He noted that if this enacted some states would then state to reconsider adjusting VAT collection as well as ask companies to register operations in different, which in entirety would be cumbersome

He said: “This is a judgment of the Federal High Court and I don’t think any state would want to implement it. You expect there would be an appeal to court of appeal and then Supreme Court. This is a major issue so I don’t think anyone would allow it stand at this level were it is. So, the reality is that I would not be implemented now, it would still be under appeal and I don’t know how many more years that would take.”

“Today, VAT is somewhere around N1.5 trillion TO N1.8 trillion a year. About 12 to 15 per cent of that is collected at the border by customs and no state can collect at the border, it still has to be the federal government. And VAT you would get from the border from imports is not very different from what is gotten form the VAT pool. So, the impact on federal government would be negligible and Lagos state would make five times what they are getting from VAT and they would be the winner from this. Many states from the North would have almost nothing to collect. Some sates like Rivers, Ogun maybe they would be balanced because they have g good number of VAT within their states but more than 30 of the 36 states would be far worse off if the judgment is implemented.”