Judgement On VAT Will Strengthen Campaign For Restructuring Says Falana SAN

*Presses states to rally round Rivers
*Says dispute over enforcement not call for anarchy
*Lagos with 70% VAT contribution will be greatest beneficiary

Human rights lawyer, Mr. Femi Falana, yesterday, said the
judgement of the Federal High Court in Port Harcourt, which ruled
against the administration and collection of Value Added Tax (VAT)
by the Federal Inland Revenue Service (FIRS) not only corroborated
the struggle for restructuring via litigation, but also
strengthened the campaign.

Falana urged all state governments to team up with Rivers State
Government to defend the judgement.

However, Falana warned that the FIRS should not be prevented
from collecting VAT, pending the hearing and determination of the
appeal. He said dispute over the enforcement authority of VAT,
should not call for anarchy.

The lawyer added that, if implemented, Lagos State Government,
believed to contribute about 70 per cent of VAT, would be the
greatest beneficiary, followed by the Federal Capital Territory
(FCT) with 15 per cent contribution to VAT.

Falana, a former President of the West African Bar Association
(WABA), also contended that it was evident in the 1999 Constitution
of the Federal Republic of Nigeria (as Amended) that VAT, “is
neither listed in the Exclusive Legislative List nor on the
Concurrent Legislative List.”

The legal luminary spoke in response to THISDAY’s enquiries on
whether or not Rivers State Value Added Tax Law No.4 of 2021 was
enacted in contravention of the provisions of the 1999
Constitution.

Justice Stephen D. Pam of the Federal High Court in Port
Harcourt had ruled that the FIRS lacked constitutional authority to
enforce and administer taxes not expressly stipulated under Items
58 and 59 of Part I of the Second Schedule to the 1999
Constitution.

Emboldened by the judgement of the Federal High Court, the
Rivers State House of Assembly duly passed the State Valued Added
Tax Bill No. 4 of 2021, which the state governor, Mr. Nyesom Wikne
subsequently signed into law.

FIRS said in a statement by its Director of Communications and
Liaison, Abdullahi Ahmad, advised taxpayers to continue remitting
their VATs to the federal agency or face stiff penalties if they
failed to honour their tax obligations.

But Falana, in response to THISDAY’s inquiries, explained away
the constitutional provisions for the administration, collection
and enforcement of VAT in relation to the power of the FIRS under
the Value Added Tax Act, 2007, which had its foundation in the
Decree No. 102 of 1993.

He said the judgement of the federal high court was consistent
with Items 58 and 59 of Part 1 of the Second Schedule of the 1999
Constitution, which according to him, did not encompass the VAT or
consumption taxes.

On this ground, according to him, the court decision that the
Rivers State Government and not the federal government was
constitutionally entitled to impose VAT, enforceable or collectable
in its territory was in order.

Based on the judgement, the senior advocate challenged other
states of the federation to file applications to join the case at
the Court of Appeal as interested parties to defend the judgement
of the Federal High Court.

Specifically, Falana explained that other state governments
“will have to join Rivers State to defend the judgement of the
Federal High Court. They are entitled to join the suit at the
appellate court because any order from the appeal will affect
them.”

Falana pointed out that in view of the valid and subsisting
judgment of the Federal High Court, the Rivers State Value Added
Tax Law No. 4 of 2021, “has not impugned any provision of the 1999
Constitution (as Amended).”

He said the judgement “will provide an opportunity for the
appellate courts to review the contradictory judicial authorities
on the legal status of VAT. Actually, there is a lacuna in the 1999
Constitution. The lacuna is that VAT is not on the Exclusive
Legislative List, which was the basis of the judgement.”

The senior advocate explained that the judgement of the federal
high court, “has confirmed the struggle for restructuring via
litigation. That means that the judgement will strengthen the
campaign for restructuring.”

Falana also observed that the judgement, “has a lot of
implications for the dwindling revenue of the state and local
governments across the federation,” which according to him,
reinforced the call for other state governments to join the suit at
the appellate court.

“VAT was increased from five per cent to 7.5 per cent last year
by the National Assembly. Right now, VAT collected is between N1.5
trillion and N1.8 trillion per annum.

“VAT is fully collected by the federal government and payable
into the federation account for distribution among the three tiers
of government. Even though state governments have joined the
campaign for resource control, the judgement is not in favour of
the majority of them.

“If the judgement is implemented, the Lagos State Government,
which contributes about 70 per cent of VAT, will be the greatest
beneficiary. The Federal Capital Territory will be the next
beneficiary with 15 per cent contribution to VAT.

“Apart from Rivers and about four other states that will benefit
minimally, not less than 30 states will be adversely affected as
they contribute little to the VAT. It is expected that apart from
FIRS, which is allocated four per cent from VAT as cost of
collection, other state governments may file applications to join
the case at the Court of Appeal as interested parties.

“It is also interesting to note that the judgement does not
affect the collection of import VAT on international trade. The
judgement requires all stakeholders to take advantage of the
current constitutional review to examine the collection of VAT as
it is neither in the exclusive nor in the concurrent legislative
lists under the 1999 Constitution.

“Since an appeal to the Court of Appeal together with a motion
for stay of execution had been filed, the FIRS had simply enjoined
all parties to allow the status quo to remain.”

He said FIRS should not be prevented from collecting VAT,
pending the hearing and determination of the appeal. He said the
dispute over the enforcement authority of VAT “is not a call for
anarchy.”

Rather, according to the senior advocate, the process was meant
to ensure that appeal that had been filed by the FIRS was not
rendered nugatory. That was the practice in Nigeria, when the rule
of law reigned supreme.

Falana also expressed reservations about the administration of
President Muhammadu Buhari in terms of upholding the rule of
law.

He lamented that the Buhari administration “has put the rule of
law in abeyance by saying that court orders should pave the way for
national security. A regime that has disdain for the rule of law
cannot turn round to insist on compliance with court orders.”

To compound the crisis, Falana acknowledged that Rivers State
Government “has enacted a Value Added Tax Law. The effect is that
the law takes precedence over the practice of suspending action
until the hearing and determination of the motion of the FIRS for
stay of execution.

“As soon as the vacation of the courts ends, the FIRS will
ensure that the trial court hears its motion for stay. If the
motion is granted, the status quo remains but if it is refused the
Rivers State Government will continue to collect VAT under the new
law, because of the serious issues involved in the case, the legal
battle will be pursued up to the Supreme Court.”

*Presses states to rally round Rivers
*Says dispute over enforcement not call for anarchy
*Lagos with 70% VAT contribution will be greatest beneficiary

Human rights lawyer, Mr. Femi Falana, yesterday, said the
judgement of the Federal High Court in Port Harcourt, which ruled
against the administration and collection of Value Added Tax (VAT)
by the Federal Inland Revenue Service (FIRS) not only corroborated
the struggle for restructuring via litigation, but also
strengthened the campaign.

Falana urged all state governments to team up with Rivers State
Government to defend the judgement.

However, Falana warned that the FIRS should not be prevented
from collecting VAT, pending the hearing and determination of the
appeal. He said dispute over the enforcement authority of VAT,
should not call for anarchy.

The lawyer added that, if implemented, Lagos State Government,
believed to contribute about 70 per cent of VAT, would be the
greatest beneficiary, followed by the Federal Capital Territory
(FCT) with 15 per cent contribution to VAT.

Falana, a former President of the West African Bar Association
(WABA), also contended that it was evident in the 1999 Constitution
of the Federal Republic of Nigeria (as Amended) that VAT, “is
neither listed in the Exclusive Legislative List nor on the
Concurrent Legislative List.”

The legal luminary spoke in response to THISDAY’s enquiries on
whether or not Rivers State Value Added Tax Law No.4 of 2021 was
enacted in contravention of the provisions of the 1999
Constitution.

Justice Stephen D. Pam of the Federal High Court in Port
Harcourt had ruled that the FIRS lacked constitutional authority to
enforce and administer taxes not expressly stipulated under Items
58 and 59 of Part I of the Second Schedule to the 1999
Constitution.

Emboldened by the judgement of the Federal High Court, the
Rivers State House of Assembly duly passed the State Valued Added
Tax Bill No. 4 of 2021, which the state governor, Mr. Nyesom Wikne
subsequently signed into law.

FIRS said in a statement by its Director of Communications and
Liaison, Abdullahi Ahmad, advised taxpayers to continue remitting
their VATs to the federal agency or face stiff penalties if they
failed to honour their tax obligations.

But Falana, in response to THISDAY’s inquiries, explained away
the constitutional provisions for the administration, collection
and enforcement of VAT in relation to the power of the FIRS under
the Value Added Tax Act, 2007, which had its foundation in the
Decree No. 102 of 1993.

He said the judgement of the federal high court was consistent
with Items 58 and 59 of Part 1 of the Second Schedule of the 1999
Constitution, which according to him, did not encompass the VAT or
consumption taxes.

On this ground, according to him, the court decision that the
Rivers State Government and not the federal government was
constitutionally entitled to impose VAT, enforceable or collectable
in its territory was in order.

Based on the judgement, the senior advocate challenged other
states of the federation to file applications to join the case at
the Court of Appeal as interested parties to defend the judgement
of the Federal High Court.

Specifically, Falana explained that other state governments
“will have to join Rivers State to defend the judgement of the
Federal High Court. They are entitled to join the suit at the
appellate court because any order from the appeal will affect
them.”

Falana pointed out that in view of the valid and subsisting
judgment of the Federal High Court, the Rivers State Value Added
Tax Law No. 4 of 2021, “has not impugned any provision of the 1999
Constitution (as Amended).”

He said the judgement “will provide an opportunity for the
appellate courts to review the contradictory judicial authorities
on the legal status of VAT. Actually, there is a lacuna in the 1999
Constitution. The lacuna is that VAT is not on the Exclusive
Legislative List, which was the basis of the judgement.”

The senior advocate explained that the judgement of the federal
high court, “has confirmed the struggle for restructuring via
litigation. That means that the judgement will strengthen the
campaign for restructuring.”

Falana also observed that the judgement, “has a lot of
implications for the dwindling revenue of the state and local
governments across the federation,” which according to him,
reinforced the call for other state governments to join the suit at
the appellate court.

“VAT was increased from five per cent to 7.5 per cent last year
by the National Assembly. Right now, VAT collected is between N1.5
trillion and N1.8 trillion per annum.

“VAT is fully collected by the federal government and payable
into the federation account for distribution among the three tiers
of government. Even though state governments have joined the
campaign for resource control, the judgement is not in favour of
the majority of them.

“If the judgement is implemented, the Lagos State Government,
which contributes about 70 per cent of VAT, will be the greatest
beneficiary. The Federal Capital Territory will be the next
beneficiary with 15 per cent contribution to VAT.

“Apart from Rivers and about four other states that will benefit
minimally, not less than 30 states will be adversely affected as
they contribute little to the VAT. It is expected that apart from
FIRS, which is allocated four per cent from VAT as cost of
collection, other state governments may file applications to join
the case at the Court of Appeal as interested parties.

“It is also interesting to note that the judgement does not
affect the collection of import VAT on international trade. The
judgement requires all stakeholders to take advantage of the
current constitutional review to examine the collection of VAT as
it is neither in the exclusive nor in the concurrent legislative
lists under the 1999 Constitution.

“Since an appeal to the Court of Appeal together with a motion
for stay of execution had been filed, the FIRS had simply enjoined
all parties to allow the status quo to remain.”

He said FIRS should not be prevented from collecting VAT,
pending the hearing and determination of the appeal. He said the
dispute over the enforcement authority of VAT “is not a call for
anarchy.”

Rather, according to the senior advocate, the process was meant
to ensure that appeal that had been filed by the FIRS was not
rendered nugatory. That was the practice in Nigeria, when the rule
of law reigned supreme.

Falana also expressed reservations about the administration of
President Muhammadu Buhari in terms of upholding the rule of
law.

He lamented that the Buhari administration “has put the rule of
law in abeyance by saying that court orders should pave the way for
national security. A regime that has disdain for the rule of law
cannot turn round to insist on compliance with court orders.”

To compound the crisis, Falana acknowledged that Rivers State
Government “has enacted a Value Added Tax Law. The effect is that
the law takes precedence over the practice of suspending action
until the hearing and determination of the motion of the FIRS for
stay of execution.

“As soon as the vacation of the courts ends, the FIRS will
ensure that the trial court hears its motion for stay. If the
motion is granted, the status quo remains but if it is refused the
Rivers State Government will continue to collect VAT under the new
law, because of the serious issues involved in the case, the legal
battle will be pursued up to the Supreme Court.”