Tax: Rivers judgment inline with true fiscal federalism-Expert

A finance expert and President Association of Capital Markets Academics (ACMAN), Prof. Uche Uwaleke has stated that the recent ruling by the federal high court in Rivers state with regards to tax collection is welcoming and in line with true federalism in

Speaking to LBN, Uwaleke stated that “The judgment is line with true fiscal federalism as it returns taxing powers concerning VAT to State governments consistent with the 1999 Constitution.

“Recall that VAT, a consumption tax, was used to replace Sales tax. It stands to reason therefore that these taxes should be collected and administered by tax authorities of the areas where the consumption takes place.

“Just like ‘Principal Place of Residence’ is used to determine tax authority in respect of Personal Income Tax, principal place of consumption should be applied concerning VAT.

“If implemented, it will boost the IGR of many states since they will now be in a stronger position to collect VAT. As you know, VAT collection Efficiency in Nigeria is low partly because it is centrally collected. So, I think it will reduce the incidence of non-remittance of VAT collections by companies,” Uwaleke said.

Speaking further, Uwaleke stated that States are the largest beneficiaries of VAT collections but what is currently being collected by the FIRS is still far below what could be collected.

“Under an arrangement in which States take over VAT collections, the Federal government will be expected to concentrate on VAT from Multinational companies, VAT on FG contracts and Securities Transactions as well as Customs and the FCT.

“Undoubtedly, some States may experience poor VAT collections due to low level of consumption and economic activities. The FG may work out an arrangement where the affected States are assisted from FG’ VAT collections,” He added.

Recall that the federal high court in Port Harcourt has issued an order restraining the Federal Inland Revenue Service (FIRS) from collecting value-added tax (VAT) and personal income tax (PIT) in Rivers state.

In its ruling on Monday, the court directed the Rivers state government to take charge of the collection.

Rivers state government (plaintiff) had filed a case, with a suit No. FHC/PH/CS/149/2020, against the FIRS (first defendant) and the attorney general of the federation (second defendant) over demands, threats and intimidation of the state residents to pay PIT and VAT by the tax agency.

The state government had sought 11 reliefs from the court. These include a declaration that the power of the federal government to delegate the collection of taxes can only be exercised by the state government or other authority of the state and no other person according to provisions in Part II (concurrent legislative list) of the Second Schedule of the 1999 constitution as amended