After a federal High Court in Port Harcourt ruled that it was unconstitutional for the Federal Government through the Federal Inland Revenue Service (FIRS) to collect VAT and Personal Income Tax in Rivers State, the governor of the state, Nyelsom Wike signed into law a bill that authorises the state government to collect VAT in the state. Governor Wike, while signing the bill said that the Federal government had been perpetuating illegality through VAT collection and had by implication strangulated the states financially.
Justice Stephen Pam in his ruling directed the Rivers State Government to take charge of the collection of both taxes. The court further declared that the defendants were not constitutionally entitled to charge or impose levies, charges or rates, under any guise or by whatever name called, on residents of Rivers State and any state of the federation.
Wike, through his media aide, Kelvin Ebiri, said, “States have been turned to beggars. Hardly will any day pass that you won’t see one state or the other going to Abuja to beg for one fund or the other. In Rivers state, we awarded contracts to companies and within the last month we paid over N30 billion to the contractors and 7.5% will now be deducted from that and to be given to FIRS.
“Now, look at 7.5% of N30 billions of contracts we awarded to companies in Rivers state, you will be talking about almost N3 billion only from that source. Now, at the end of the month, Rivers state government has never received more than N2 billion from VAT. Do, I have contributed more through the award of contract and you are giving me less. What is the justification for it?”
In reacting to the Rivers state government’s action, the FIRS approached the national assembly to establish the Federal Revenue Court of Nigeria and also insert the Value Added Tax under item 58 of the exclusive legislative list.
We hold that the reaction of the FIRS is against the spirit of true federalism we claim to practice in Nigeria. Apart from being politically federal in nature, the 36 states must also be economically and financially federal.
Nigeria as a country should move beyond a unitary form of federalism and begin to practice in principle and all practicality true and undiluted federalism. We align with former Deputy President of the Senate, Senator Ike Ekweremadu that fiscal federalism is the only way to enable states to harness their potentials and comparative advantage.
Ekweremadu in his submission said, “Rather than begrudge states like Rivers and Lagos, all federating units should be encouraged and enabled to look inwards to reinvent themselves. They should be encouraged to boost their respective competitiveness through improved security, human capital development, industry, and building of egalitarian and cosmopolitan societies”.
We also encourage the bold steps the other southern states have taken to collectively resolved to pursue the position that only state governments have the power to collect VAT. We are certain this is a reignited move to force true federalism into play.