The recent ruling by the Federal High Court in Port Harcourt, Rivers State, that states are entitled to collect the Value Added tax (VAT) and the Personal Income Tax (PIT) is a further test of our convoluted federalism and the rule of law under the highly maligned 1999 Nigerian Constitution. In the judgement under reference, Justice Stephen Daylop Pam on August 9, 2021, ruled that Rivers State has the constitutional right to collect VAT on goods and services within the state and not the Federal Inland Revenue Service (FIRS).
The Judge also restrained the FIRS and the Attorney-General of the Federation from collecting VAT and Personal Income Tax (PIT) from residents of Rivers State. Following the judgement, FIRS approached the Federal High Court on August 15 asking for stay of execution of the judgement. Governor Nyesom Wike of Rivers State on August 19, 2021 signed into law the Rivers State Value Added Tax Bill, 2021, at Government House, Port Harcourt. However, Justice Stephen Daylop Pam had on September 5, 2021, dismissed the application of FIRS which sought to stop Rivers State from collecting VAT and PIT saying that granting such request will negate the principle of equity. Rivers State has mapped out plans to collect VAT and PIT and has intimated companies and businesses operating in the state. Let it go ahead and do so. Following this successful test of the rule of law, Lagos and Ekiti states are likely to join Rivers State in the legal battle. In fact, Lagos and Ekiti states have planned to enact similar laws on the collection of VAT. It is likely that other states will follow suit.
The FIRS has also opposed the move by states to collect VAT saying that it will stifle businesses and investments. It has reportedly urged the National Assembly to include VAT in the exclusive legislative list through constitutional amendment. If this move is true, it is a panicky measure that will not succeed. It will not augur well for our federation, which has been unitarised so much under President Muhammadu Buhari administration.
Already, there are 68 items on the exclusive legislative list. Adding VAT to it will be overkill. It will also make nonsense of our federalism. The federal government and its agencies, including FIRS must learn to obey court rulings and orders, whether favourable or not. That is the beauty of democracy and constitutional order. The VAT case has really opened the eyes of Nigerians, especially the governors, that VAT, which is a consumption tax, actually belongs to the state where it is generated.
The idea of pooling all the VAT generated by all the states and shared among the three tiers of government is an aberration and a stranger to the 1999 Constitution (as amended). The Federal High Court’s ruling on VAT demonstrates the beauty of democracy. It is a victory for the rule of law and constitutional order. It is a victory for the judiciary as well. For years, the independence of the judiciary as an arm of government has been hampered by undue interference by the executive arm of government. It is right that the judiciary is asserting its independence and fearlessness in the adjudication of justice. The VAT ruling has also shown that despite the imperfections of the 1999 Constitution, it has some redeeming features. The only snag is that some state actors at times abuse the constitution. After all, it is the same 1999 Constitution that was used by former presidents Olusegun Obasanjo, Shehu Musa Yar’Adua and Goodluck Jonathan to rule the country. Even in the United States, the world witnessed how Donald Trump nearly truncated the highly tested US constitution but he was defeated by the resilience of American democratic institutions and by the will of the American people.
Those in charge of such democratic institutions in the US swore to defend it and they did just that. But can that happen in Nigeria? Those who are aggrieved by the VAT ruling can only approach the courts for redress. In all, let the rule of law prevail. Or the affected parties can settle out of courts through a political solution. Maybe the constitution can still be redeemed through far-reaching amendments. Those trying to override the decision of the Federal High Court in Port Harcourt, Rivers State, through unconstitutional means or undue meddlesomeness, should desist from such unpatriotic acts.
The stalemate over which agency should collect VAT in Rivers is uncalled for because a court of competent jurisdiction has ruled in favour of Rivers State. The government of Rivers State should go ahead and collect VAT and PIT until that decision is quashed by a superior court. Governor Nyesom Wike must be commended for taking the bull by the horns over the VAT issue. Justice Pam should be commended for his courage and fearlessness.
Other state governors should join Wike in the crusade to uphold the rule of law and constitutional democracy. The VAT ruling will make the states to wake up in generating internal revenue and increasing their revenue base instead of waiting for monthly handout from Abuja. It is not justifiable that states that generate less in VAT gets more from VAT proceeds. It is also not true that allowing states to control their VAT will lead to bankruptcy in 30 states. Instead of making them bankrupt, the ruling on VAT will make them sit up in revenue generation.
This idea of sharing and sharing of money generated by some states in Abuja every month cannot promote our federalism. Every state should think of how to contribute to the generating of the revenue to be shared. The idea of sharing has made some states lazy. Besides, the ruling will deepen the way to fiscal federalism which most Nigerians have been clamoring for years. In fact, the National Assembly must strive to ensure that more items are removed from the 68 items on the exclusive legislative list and given to the states.
In other federal systems, some states are even richer than the federal government, but in our own skewed system, the omnibus federal government is too powerful and rich when it produces nothing. Just as the people of Zamfara State and others from the North are controlling the revenue from gold and other minerals, every state must be allowed to control the resources in its domain and pay certain percentage to the central government. Fortunately, every state in the country has some resources to control.
That is how it works in the United States. That is why California and Texas and some others are the richest states in the US. It is through fiscal federalism that this ‘abiku’ nation can survive and perhaps become a great nation one day. It is commendable that the 1999 Constitution is being tested. We should do more and use such avenues to ensure fiscal federalism, which some people due to selfish reasons, are opposing. Nigeria can only witness real growth and development if we embrace fiscal federalism and enthrone merit and the rule of law. Without these, we will continue to wallow from one crisis to another and remain a laughing stock before other nations including those we commenced the journey to nationhood with.