Rivers moves swiftly with new law for VAT collection as FIRS appeals ruling

Smarting from a legal victory over the authority on collection of value added tax (VAT) proceeds, Rivers State has moved swiftly to enact a state law empowering its internal revenue agency, the Rivers Internal Revenue Service (RiRS) to collect the tax across the state.

But the federal revenue agency, Federal Inland Revenue Service (FIRS), has appealed last week’s Federal High Court, Port Harcourt judgement in which the court awarded VAT collection to the state, and not FIRS. Legal fireworks are expected to ensue in the weeks and months ahead between both camps.

Governor Nyesom Wike of Rivers in Port Harcourt informed that the state executive arm has already sent a bill to the State Assembly to empower the state government to collect VAT and other related taxes in the state.

Nigeria earned N1.01 trillion as VAT in the first half of this year (H1’21). According to sectoral distribution of VAT data recently published by the National Bureau of Statistics (NBS), the sum of N512.25 billion was generated as VAT in the second quarter of the year (Q2 2021), rising 3.2 percent on a quarter-on-quarter (q-o-q) comparison, against the N496.39 billion generated in the first three months of 2021.

The NBS data also show that on a year-on-year (y-o-y) analysis, total sectoral distribution of VAT printed a 56.56 percent surge from N327.20 billion generated in the corresponding period of 2020.

Economic experts believe that the VAT haul was due to the full implementation of the 2020 Finance Act, which raised by 50 percent the VAT rate to 7.5 percent from the initial 5 percent.

But if the Rivers court judgement stands (if FIRS loses at the appellate court), the central government would be losing a substantial part of its tax revenue to the Rivers State government.

Potential could push states for VAT haul-in

Similarly, economic analysts posit that the Rivers move could potentially spur other states of the federation into seeking VAT haul-in for their sub-nationals. More so, the majority of state governments are unable to pay salaries year-on-year since 2016 when Nigeria plunged into its second recession in five years. In 2019, all the sub-nationals had to receive N614 billion as bailout funds from the federal government. Despite this, these states have continued to largely depend on federal envelopes via the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) accounts for their sustenance.