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VAT Judgement: FIRS May Lose N92bn Revenue

Ebuka Daniel

If the judgement of the Federal High Court asking states government to collect Value Added Tax in their domain is upheld by the Appeal Court, then the Federal Inland Revenue Service will lose a whopping sum of N92bn which is expected to be earned as cost of collection from VAT next year.

The law setting up the FIRS allows the agency to deduct four per cent as the cost of revenue collection from non-oil taxes before remitting same into the federation account.

The FIRS is one of the agencies of the government that generates revenue for sharing by the three tiers of government.

Others are the Nigeria Customs Service and the Nigerian National Petroleum Corporation.

The highest source of revenue for the FIRS is Petroleum Tax followed by VAT. Others include Stamp Duty, Company Tax.

In the 2016 fiscal period, the FIRS received the sum of N85.99bn as cost of revenue collection, while it got N100.3bn as the cost of revenue collection in 2017

In the 2018 fiscal year, the service got N114.1bn as the cost of revenue collection out of the N5.32tn actual revenue it generated for that year.

The FIRS received about N112bn and N121bn as cost of revenue collected in 2019 and 2020 respectively. 

Based on the Medium-Term Expenditure Framework/Fiscal Strategy Paper (2022-2024), the Federal Government is proposing to generate the sum of N2.3trn from VAT in 2022.

In line with S.40 of the VAT Act, revenue is shared thus: 15 per cent to Federal Government, 50 per cent to States and FCT, and 35 per cent to Local Governments.

The principle of derivation of not less than 20 per cent is reflected in the distribution to states and LGs.

Although not stated in the VAT Act, other factors used in the distribution according to tax experts are equality (50 per cent) and population (30 per cent).

There is a four per cent cost of collection for FIRS and 2 per cent for Nigerian Customs Service in the case of import VAT.

States with the highest derivation are Lagos (50.5 per cent), FCT (13.2 per cent), Oyo (2.9 per cent), Rivers (2.7 per cent), and Kano (1.4 per cent).

The bottom 32 states contributed only seven per cent with the bottom three being Abia (0.08 per cent), Osun (0.07 per cent), and Zamfara (0.06 per cent).

On the other hand, amounts shared by the top states and their LGs are Lagos (14.7 per cent), Kano (3.8 per cent), Oyo (3.2 per cent), Rivers (2.7 per cent) and FCT (2.5 per cent).

The bottom 3 states shared Osun (2 per cent), Abia (1.6 per cent), and Zamfara (1.6 per cent).

With the FIRS entitled to four per cent as cost of collection, it implies that the Service is expected to earn N92bn as cost of revenue collection from the projected N2.3trn 2022 VAT revenue.

A Federal High Court sitting in Port Harcourt, Rivers State, had dismissed an application by the Federal Inland Revenue Service, FIRS, seeking to stop the state governments from commencing collection of Value Added Tax, in the state.

Consequent upon the court ruling last Monday, Governor Nyesom Wike had directed the Rivers State Revenue Service, to immediately commence collection of Value Added Tax, VAT, from corporate bodies and businesses in the state.

Already, the dispute between the Federal Inland Revenue Service and some states over the collection of VAT had made some more states such as Lagos, Ogun and Akwa Ibom, to enact laws that will enable them to collect the tax in their states.

It was learnt that stripping the FIRS of the power to collect VAT would reduce the commission the agency will be receiving.

But speaking on the implication of the judgement, the Group Lead, Special Operations Group, FIRS, Mathew Gbonjubola, stated that there is nowhere in the world where the administration of VAT is done at the sub-national level.

He said that contrary to misconceptions in some quarters, the FIRS administers VAT on behalf of the three tiers of government and not for the Federal Government alone.

According to him, the revenue from VAT is administered under an arrangement that allows the Federal Government to collect 15 per cent, States 50 per cent and Local Government 35 per cent. 

The implication of this, according to him, is that the State and Local Governments take about 85 per cent of VAT proceeds.

He said, “The VAT is not paid to the Federation Account but to VAT pool account for distribution to the three tiers of government. It is after the sharing that the portion of the Federal Government is paid to the Consolidated Revenue Fund Account.

“VAT works only at a national level but not at a sub-national level. There is no country in the world where VAT works at the sub-national level.”

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