FIRS vs Rivers State - Value Added Tax (VAT) Case

Do you work as an accountant or tax consultant for a business that is obligated to pay VAT in Rivers State? or do you?run a business that is obligated to pay VAT in the 'treasure base of the nation' State? - I am sure you are in a big dilemma as to whether to remit your VAT to the State Revenue Board or the?#FIRS. Here is my take on this.

Background?

VAT was introduced via Decree No.102 of 1993. It replaced sales tax operated under Decree No.7 of 1986 which was administered by states and the FCT. By contrast, VAT is administered by the FIRS and the revenue is shared among all 3 levels of?#government. Both?#VAT?and sales tax fall under the category of?#consumption?tax.

The Federal High Court in Port Harcourt on Monday 9 August 2021 ruled that the Rivers State Government and not the FIRS is entitled to collect VAT in the state. This is on the premise that only the state is constitutionally entitled to impose taxes in its territory of the nature of consumption or sales tax.

On Monday 6 September 2021, Rivers State Federal High Court denied a temporary residence application submitted by FIRS. This reinforces the Federal High Court's ruling allowing Rivers State and other states to collect VAT in their states. By implication, if this?#judgment?is upheld by the Supreme Court, other states may follow suit.

This means that all states would administer VAT within their territories and the FIRS would only administer VAT within the Federal Capital Territory (#FCT) while Import VAT would still be administered by the Nigerian Custom on international trade.?

Rivers State has moved to enact VAT legislation with immediate effect and has required Rivers taxpayers to begin paying VAT to them.?

Possible future effect?

The biggest losers will be the states, with the exception of Lagos. States such as?#Rivers,?#Delta,?#Oyo,?#Ogun,?#Kano,?#Kaduna, and?#Katsina?are likely to be minimally affected, while at least 30 states that account for less than 20% of VAT revenue will experience a significant drop in?#revenue. In fact, the federal government might be better off as the FCT generates the second-highest VAT (after Lagos) outside of VAT on?#international?trade.

VAT accounted for about N1.5 trillion in the year 2020. This was shared in a ratio of 50:35:15 between State, LG, and FG respectively.

Dilemma

Although the FIRS has ordered Rivers State taxpayers to continue paying their VAT to FIRS until the Supreme Court decides otherwise.?At this point, many Rivers State taxpayers may be struggling, but they must follow the enactment of the law.

Photo Credit:?Grains eCFO

#economy?#business?#law?#supremecourt?#taxes?#tax?#accountant