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By Omodele Adigun
With the enactment of laws by Rivers and Lagos States empowering them to collect Value Added Tax (VAT) in their respective states, financial experts have voiced their fears about the ripple effect of the courts’ decision on some states with poor Internally Generated Revenue (IGR), especially the ones that fall below 10 per cent.
The reason for their fears is not farfetched. The 2019 Annual States Viability Index (ASVI) report listed only six states as economically viable. They are: Lagos, Ogun, Rivers, Kwara, Kaduna and Enugu. It showed the poor and insolvent ones as Katsina, Kebbi, Borno, Bayelsa and Taraba States, excluding 25 others.
Last year, the Economic Confidential released the 2019 ASVI. It showed that only six states, out of 30 in the federation, were economically viable. The report further indicated that the IGR of Lagos State, N398 billion, is higher than that of 20 other states put together. It noted that their IGRs are extremely low and poor, compared to their allocations from the Federation Account. Meanwhile, the Federal Capital Territory, which is not a state, generated N74 billion IGR as against N30 billion from the Federation Account within the same period. Lagos State remained in its number one position in IGR with a total revenue generation of N398 billion compared to FAA of N270 billion. This translates to 147% in the 12 months of 2019.
It was followed by Ogun which generated IGR of N70.92 billion compared to FAA of N92 billion; Rivers with N140 billion compared to FAA of N219 billion, and representing. Kwara with a low receipt from the Federation Account generated N30 billion compared to FAA of N80 billion.
Others included Kaduna, N44 billion compared to FAA of N129 billion; Enugu, N31 billion compared to FAA of N103 billion; Ondo, N30 billion compared to FAA of N103 billion; Edo, N29 billion compared to FAA of N108 billion; Anambra, N26 billion compared to FAA of N98 billion; Cross River, N22 billion IGR as against FAA of N99 billion. In short, the ten states generated a total N894 billion in total while the remaining 26 states generated a total of N440 billion in 2019.
Katsina, the home state of President Muhammadu Buhari, generated the poorest and lowest IGR compared to its federal allocation in 2019. It realised a meagre N8 billion compared to a total of N136 billion received from the Federation Account Allocation, FAA, in 2019. It was followed by Kebbi, N7.3 billion compared to FAA of N100 billion; Borno N8 billion compared to FAA of N121 billion and Taraba, N6.5 billion compared to N86 billion of FAA. Others include Bayelsa, the home state of former President Goodluck Jonathan, with IGR of N16 billion compared to N176 billion of FAA.
In the case pending before the Supreme Court, the states are contending through their Attorney-Generals that they are legally vested with the authority to administer and collect stamp duties on all transactions involving individuals and persons within their territories and, not Federal Government which had been doing so, through the Federal Inland Revenue Service (FIRS).
If judgement goes their way, the economically unviable states may not be able to meet their financial obligations because the revenue from VAT is administered under an arrangement that allows the Federal Government to collect 15 per cent, states 50 per cent and local government 35 per cent, according to the Group Lead, Special Operations Group, (FIRS), Mr Mathew Gbonjubol. Before now, most of the federating units depended on funding from the Federal Allocation Account Committee (FAAC) due to their poor IGR.
Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at the PriceWaterCoopers (PwC), confirmed this fear when he told a national daily that at least 30 states, which account for less than 20 per cent of VAT collection would suffer significant revenue decline. But he explained that the judgment might also have implications for taxes collectible by local governments, which are currently administered by states as well as the amendment via Finance Act 2020, which introduced Electronic Money Transfer levy in place of stamp duties, among others.
While Adefisayo Awogbade, the Registrar/CEO of the Chartered Institute of Taxation of Nigeria (CITN), Adefisayo Awogbade, noted that it is not the first time that the VAT Act has been declared unconstitutional, human rights lawyer, Ebun-Olu Adegboruwa (SAN), threw his weight behind Governor Nyesom Wike of Rivers State and his Lagos State counterpart, Babajide Sanwo-Olu, for championing the agitation for fiscal federalism for states in the country.
Sensing the dangers ahead, two of the states, Katsina and Gombe, have resorted to threat and moral suasion to discourage Rivers and Lagos from going ahead with their fiscal federalism agitation. Describing the judgement as “unfair”, the Katsina Governor, Aminu Masari. announced that the state has appealed against a recent ruling by the Rivers Division of the Federal High Court, which held that the Rivers government should take charge of collecting value-added tax (VAT) in the state instead of the Federal Government.
The court had, on August 9, issued an order restraining the FIRS from collecting VAT and Personal Income Tax (PIT) in Rivers State after the state government filed a case against the agency and the attorney general of the federation over illegalities. On its part, the Gombe State has sued for understanding from other state governments on the VAT generated across the country. In the earnest appeal, the Commissioner for Finance and Economic Development, Muhammad Magaji, asked southern states to put away sentiments and become their “brothers’ keepers” in sharing the VAT generated in their respective states.
He posited that with the dwindling revenue from the federation account, it was obvious that only three of the 36 states in the country would survive without support from the Federal Government.
But Prof. Uche Uwaleke, former Commissioner for Finance in Imo State and financial expert, believes that, contrary to the prediction by some financial experts, that the quest, if it sails through at the Supreme Court, will boost the IGR of many states since they will now be in a stronger position to collect VAT. “As you know, VAT collection efficiency in Nigeria is low partly because it is centrally collected,” he said. “So, I think it will reduce the incidence of non-remittance of VAT collections by companies.”
