Federal Inland Revenue Service’s (FIRS) optimism that this 2021 fiscal year will be better than 2020 has suffered a major setback in Rivers State as a Federal High Court has declared that it is the state government and not FIRS, that should collect Valued Added Tax (VAT) and Personal Income Tax (PIT) in the big oil and gas state, and indeed, all the other states of the federation..
FIRS announced a total tax revenue of N4,952,243,711,728.37 for the year 2020. The service explained that the landmark achievement represents approximately 98% of the national tax target of N5.076 trillion set for the FIRS by the federal government.
Executive Chairman of FIRS, Muhammad Nami, announced this during a press conference in Abuja, Nigeria’s capital city last January, pointing out that the near 100% collection feat was remarkable in view of the debilitating effects of COVID-19 on the Nigerian economy; the all-time low price of crude oil in the international market; business disruptions and lootings during the EndSars protests.
The FIRS boss also stressed that the feat was possible despite the generous tax waivers granted by the service to ease the impact of the COVID-19 shutdown; additional tax exemptions granted to small companies in the 2019 Finance Act and insecurity in some parts of the country.
Apparently buoyed by the feat, the revenue agency announced an ambitious target of generating N5.9trillion as revenue for 2021
Nami placed the FIRS revenue projection for 2021 at N5.9 trillion when he spoke with a cross-section of journalists in Abuja last March shortly after meeting with the House of Representatives Committee on Finance, led by James Falake, on his agency’s 2021 budget defence and consideration of its proposed Revenue and Expenditure Estimates.
According to the FIRS boss, of the proposed figure, non-oil and oil components are expected to generate N4.26 trillion and N1.64 trillion respectively.
But, a major ruling by a Federal High Court in Port Harcourt is not likely to make it possible again. In June this year, FIRS says it generated a revenue of N650 billion. Its Director of Communications and Liaison Department, Abdullahi Ahmad, who made this public in a statement said the figure is the highest revenue realised in a single month since the COVID-19 outbreak in Nigeria and the assumption of office by the current management.
According to him, his principal, Nami, said: “This feat was achieved as a result of the efficiency and effectiveness of the TaxProMax Solution. Notwithstanding the challenges and resistance faced in the early stages of its adoption, and the downturn orchestrated by slow economic recovery.”
Nami said the tax administration solution (TaxProMax), introduced in June, was developed to ease tax compliance in the country, pointing out that the platform has made it possible for seamless registration, filing, payment of taxes, and automatic credit of withholding tax and other credits to the taxpayer’s accounts, among other features.
He also said the TaxProMax provides a single-view to taxpayers for all transactions with the FIRS. However, the agency’s highest revenue generation for a full-year was in 2018 when it generated N5.32 trillion.
The Federal High Court in Port Harcourt presided over by Justice Stephen Dalyop Pam, also issued an order of perpetual injunction restraining FIRS and the Attorney General of the federation, both first and second defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, personnel income tax and VAT.
Justice Pam was delivering judgment in Suit No. FHC/PH/CS/149/2020, filed by the Attorney General for Rivers State (plaintiff), against FIRS (first defendant) and the Attorney General of the Federation (second defendant).
The Court, which granted all the eleven reliefs sought by the Rivers State Government, stated that there is no constitutional basis for FIRS to demand for and collect VAT, Withholding Tax, Education Tax and Technology levy in Rivers or any other state of the federation, being that the constitutional powers and competence of the Federal Government is limited to taxation of incomes, profits and capital gains which does not include VAT or any other species of sales, or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the Constitution.
The judge dismissed the preliminary objections filed by the defendants that the Court lacks jurisdiction to hear the suit and that the case should be transferred to Court of Appeal for interpretation.
Justice Pam, who also dismissed objection raised by the defendants that the National Assembly ought to have been made a party in the suit, declared that the issues of taxes raised by the State government are issues of law that the court is constitutionally empowered to entertain.
He declared that after a diligent review of the issues raised by both the plaintiff and the defendants, the plaintiff has proven beyond doubt that it is entitled to all the eleven reliefs it sought in the suit.
The court agreed with Rivers State Government that it is the state and not FIRS that is constitutionally entitled to impose taxes enforceable or collectable in its territory of the nature of consumption or sales tax, VAT, education and other taxes or levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended.
Also, the court declared that the defendants are not constitutionally entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on the residents of Rivers State and indeed any state of the federation.
Among the reliefs sought by the Rivers State Government, is a declaration that the constitutional power of the Federal Government to impose taxes and duties is only limited to the items listed in items 58 and 59 of Part 1 of the second schedule of the 1999 constitution as amended.
Rivers State Government also urged the court to declare that, by virtue of the provisions of items 7 and 8 of the Part II (Concurrent Legislative List) of the Second Schedule of the constitution, 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.
The state government had further asked the court to declare that all statutory provisions made or purportedly made in the exercise of the legislative powers of the Federal Government, which contains provisions which are inconsistent with or in excess of the powers to impose tax and duties, as prescribed by items 58 and 59 of the Part I of the Second Schedule of the 1999 constitution, or inconsistent of the power to delegate the duty of collection of taxes, as contained in items 7 and 8 of Part II of the Second Schedule of the Constitution, are unconstitutional, null and void.
Lead counsel for the state government, Donald Chika Denwigwe (SAN), who spoke to journalists after the court session, explained that the case is all about the interpretation of the constitution as regards the authority of the government at the State and Federal levels to collect certain revenue particularly VAT.
“So, during the determination of the matter, some issues of law were thrown up like, whether or not the case should be referred to the Court of Appeal for the determination of some issues.
“The court noted that the application is like asking the Federal High Court to transfer the entire case to the Court of Appeal. In which case, if the court so decides there will be nothing left to refer back to the Federal High Court as required by the constitution.”
According to Denwigwe, the court refused that prayer and decided that the case was in its proper place before the Federal High Court and to determine it, pointing out that it is now, unlawful for such taxes as VAT in Rivers to be collected by any agency of the federal government.
“In a summary, it is a determination that it is wrong for the Federal government to be collecting taxes which are constitutionally reserved for the state governments to collect. The implication of the judgement is that the government (Federal and State) as an authority under the constitution, should be advised by the judgement that it is the duty of all government authorities to comply with and obey the law so long as the court has interpreted it and said what that law is.
“So, in other words, the issue of Value Added Tax (VAT) in the territory of Rivers State and Personal Income Tax should be reserved for the government of Rivers State.”
Counsel to FIRS, O.C. Eyibo said he will study the judgment and advise his client.
