VAT judgement and the restructuring debate – Thisday

The ruling of the court in Port Harcourt holds lessons for all

While other states are lamenting their woes and waiting for the federal government to devolve powers to them, Rivers State chose a different approach that has proved to be very productive. In declaring that only states and not the Federal Inland Revenue Services (FIRS) were the rightful authorities to collect Value-Added Tax (VAT) and Personal Income Tax (PIT), the Federal High Court sitting in Port Harcourt has demonstrated that we can use the instrumentality of the law to right many of the wrongs in our federal structure.

The federal government is at liberty to appeal the judgement and it has indicated its willingness to do so. But it is difficult to fault the reasoning of the learned judge. The constitution defines the powers of each tier of government. What has happened over the years is that the federal government has continued to arrogate to itself powers that should be exercised by states and sometimes even local governments. Incidentally, the issues raised in the suit filed by the Attorney General for Rivers State against the Federal Inland Revenue Service (FIRS) and the Attorney General of the Federation had been critically examined by the five states controlled by the All Progressives Congress (APC) in the Southwest. They reached the same conclusion as Rivers State but chose not to challenge the matter in court, apparently for political reasons.

The power-hungry federal government has almost turned the country into a unitary state. Apart from upholding the constitution, the judgement is also in line with what obtains in other countries that operate a federal system. There are other provisions of the constitution that if purposefully interpreted will strengthen our federalism.

However, the judgement has also thrown up some issues. Most tax experts believe that its implementation would have far reaching implications, including for Small and Medium-sized Enterprises (SMEs) that may have to contend with multiple tax authorities for VAT purposes. In difficult times that we live in, government, at all levels, should make deliberate efforts to minimise or indeed eliminate incidences of multiple taxations. That it will render many states practically bankrupt is no reason to continue with what is unsustainable.

Meanwhile, we have always argued that it is patently wrong that the federal government should impose VAT on the same goods and services upon which state authorities charge ‘state tax’ and vice versa, especially in hotels, restaurants, and eateries. This perhaps explains why VAT has for long been a contentious issue. Many, for instance, query the rationale of sharing the proceeds of VAT generated from the sales of alcohol with some northern states that have not only placed a ban on its consumption but willfully destroy the products. This anomaly speaks to inequity in the current structure.

To the extent that there are no easy ways out of the hole in which we have found ourselves as a nation, the tax authorities must come up with clever ideas to address declining revenues. Real efforts must be made to expand the tax base while keeping the rates low. Our tax regime should meet the twin requirements of efficiency and equity, while adequate sensitisation and incentives should be provided to ensure voluntary compliance. And perhaps most important, the tax authorities must simplify the process of payments to meet with global best practices while tax expenditure must be transparently governed. The bottom-line is that many people would gladly pay their taxes if “their money” is seen to be appropriately spent.

The ultimate lesson from Port Harcourt is that the states need to be creative enough to seek judicial interpretations, and our courts should also be bold to intervene in a manner that strengthens our federalism.

It is because our courts have shirked their responsibility that many now resort to self-help in their engagement with fellow citizens or their dealings with the country. But Justice Stephen Dalyop Pam has shown that as imperfect as it may seem, our federalism can work. We only need an independent judiciary manned by courageous judges.

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