From: Godwin Tsa, Abuja
Three states of Adamawa, Kaduna and Plateau are set join the ongoing legal battle over the collection of Value Added Tax (VAT) between the Federal Inland Revenue Service(FIRS), Rivers and Lagos states.
This is coming as the Federal Government through the office of the Attorney General of the Federation (AGF), is working on some legal papers that will make it transmute from a mere respondent to the appeal filed by the FIRS, to an appellant in the litigation.
The Lagos State Government was on Thursday last week, joined Lagos state as a respondent in the legal battle against the Federal Inland Revenue Service(FIRS) on the collection of Value Added Tax (VAT), by the Abuja division of the Court of Appeal.
Ruling on the motion for joinder filed before it, the Court of Appeal held that Lcoups has established beyond doubt that it has substantal and sufficient legal right and interest to protect in the revenue collection dispute.
In a unanimous ruling, the court ordered that all processes filed in respect of the suit be served on Lagos as a third respondent to enable the state respond as required by law to the appeal filed by FIRS.
But while Rivers and Lagos states are challenging the powers of the FIRS to collect VAT, the three Northern states of Adamawa, Kaduna and Plateau are entering the battle field to pitch tent with the FIRS and the Federal Government.
The FIRS is consteting the judgment of the Port Harcourt division of the Federal High Court,
stopping it from collecting Value Added Tax (VAT) and Personal Income Tax (PIT) in Rivers State.
Justice Stephen Pam of the Federal High court, Port Harcourt had in his judgment, held that it is the Rives State Government that should collect VAT and PIT henceforth in the state.
The court also issued an order of perpetual injunction restraining the Federal Inland Revenue Service and the Attorney General of the federation, both first and second defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, personnel income tax and Value Added Tax.
However, dependable sources closed to the AGF and governors of the three states on Sunday in Abuja confided in our correspondent that they would file a leave of the court to be joined in the suit on Tuesday.
Although the AGF is already a defendant in the appeal, the source hinted that the Federal Ministry of Justice under the AGF has opted to be part of the appellant in the matter so as to enable it argue effectively in support of the FIRS.
They are going to seek to be joined in the suit as co-appellants against the federal high court’s judgment that favours Rivers State.
“These states understand the possible consequences if the final judgment at the Supreme Court goes against the FIRS.They are going to take the fight as if it is theirs,” the source stated.
“In fact, their motion papers would be ready by October 4 and will be filed on Tuesday October 5. I can confirm that one to you, the source revealed .
The source also added that more states especially Kogi and Zamfara are going to be joining the suit to form a coalition with the FIRS.
However, Dr Jibrilla Umar Gwandu, Senior Special Assistant to AGF Abubakar Malami SAN could not be reached for comment at the time of filing this report.
The decision of the three states is coming on the heels of the communique released by the Northern State Governors’ Forum last week where they expressed dissent and disagreement with the VAT laws of Lagos and Rivers State.
“VAT is being confused by Lagos and Rivers state governments as a sales tax. If every state government enacted its own VAT law, multiple taxation would result in increase in prices of goods and services and collapse in inter-state trade,”
Plateau State Governor, Simon Lalong had offered this while reading the communique of the meeting of the Governors.
Tax experts have also argued that were states to collect their VAT, there is likely going to be a chaotic VAT regime of possible instances of double taxation, over-taxing, poor efficiency of collection, deterioration of the ease of doing business gains, among others.
In a paper titled “How To Fix Nigeria’s Broken VAT System”, one Taiwo Oyedele who claimed to be a leading tax expert in West Africa, and the Fiscal Policy Partner and Africa Tax Leader at PwC, wrote: “If states enact their VAT or Sales tax laws, the guaranteed winners will be the federal government in respect of import VAT and international transactions (whether retained by FG only or paid into the Federation account and shared), and the FCT.
“States that may either lose or gain are Lagos and Rivers due to Headquarters effect and subject to collection efficiency.
“Lagos also has to deal with granting input VAT at 7.5% on items sourced by businesses outside the state against the lower output VAT rate of 6%. All other states and 774 local governments will be worse-off, all things being equal.”
He also argued that states would experience difficulty in collection and audit compliance.
“The positions of all states will be negatively impacted by lack of capacity to collect, difficulty in auditing compliance and higher cost of collection which may be up to 15% especially in states where consultants and other forms of agency structures are used for tax collection.”