VAT WAR: HAGF, Adamawa, Kaduna and Plateau States Join Suit With FIRS To Challenge Lagos, Rivers States

A Misguided Decision In Attorney General of Rivers State Versus FIRS Case

The Attorney General of the Federation, as well as the governments of Adamawa, Plateau and Kaduna States, are set to join the Federal Inland Revenue Service (FIRS) on its appeal against the judgement of the Federal High Court sitting in Rivers that ordered against the collection of VAT by the FIRS for the Federation while ordering that the Rivers State Government was the rightful collector of the tax among others.

The FIRS had challenged the judgment of the Federal High Court at the Court of Appeal and is seeking that it should be set aside.

Sources close to the Attorney General of the Federation as well as the Governors of these states have confirmed that they would file a leave of the court to be joined to this suit within the coming days.

“They are going to seek to be joined to 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 Federation. They are going to take the fight as if it is theirs,” a source stated.

The source also added that more states are going to be joining the suit to form a coalition with the FIRS.

This comes on the heels of the communique released by the Northern State Governors’ Forum last week expressing dissent and disagreement with the VAT laws of Lagos and Rivers State.

“VAT is being confused by these 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 said while reading the communique of the meeting of the Governors.

Tax experts have argued that were states to collect their VAT, there was 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 an essay titled “How To Fix Nigeria’s Broken VAT System”, Mr Taiwo Oyedele 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 HQ 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.”

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