jesus19984:
Any discerning observer of what is happening with the VAT issue will recognise that there is a background to it. The facade of 'fiscal federalism' that protagonists are using is just a smokescreen for underlying causes.

Unfortunately, most people are unable to delve deeper into topical issues in Nigeria today because of a kaleidoscope of bigotry, tribalism, regionalism, sectionalism, religion and other divisive sentiments. The politicians who push these narratives understand so well that we suspend our thinking caps when these sentiments are thrown into the mix.

Furthermore, as a people, we are to shortsighted to even contemplate the medium and long term implications of some of the narratives we parrot.

Data is hard evidence, which cannot be controverted. Truth is a tyrant that doesn't campaign for votes. In the end, we shall be confronted with its brutality when reality stares us in the face.

Let's even start by examining what VAT means. VAT is an acronym for Value Added Tax. Operative word is 'Value Added'. So in a chain of operation in the production of a good or service when value is added, or form changes there is an incidence of taxation. However, the protagonists of the imposition of VAT by state governments want us to believe that VAT is wholly a consumption tax. This is very disingenuous, and far from the truth. I will follow up this with the definition of VAT after posting this.

Matter of fact, is that VAT is collected at the point of consumption of goods and services but doesn't make it wholly a consumption tax. In the chain of production, and for the purposes of taxation the point of consumption of a good or service is the end of the spectrum. In between, there are several levels of value addition and supply chain that must have taken place before the final end of the spectrum of consumption. So, for instance, a good consumed in Lagos that wasn't produced in Lagos doesn't mean that all the value and supply chains took place in Lagos. This is the fundamental principle underpinning value added taxation.

Why is VAT collected at the point of consumption? The reason is quite simple, and it is this fundamental principle that the protagonists want to destroy, which will have serious consequences for the economy and people of Nigeria. The reason for collecting VAT at the point of consumption is to prevent a situation of multiple taxation. If you consider a product or service with varying levels of value addition and supply chain, if taxed at every of these levels, the taxes will be unwieldy. Thus, every jurisdiction in the world where VAT is charged has an agreed formula for calculating value addition, which is then harmonised to come up with a single rate across board. Again, this is the principal reason why VAT in any jurisdiction is not imposed by Sub-Nationals or local authorities. I don't know of any jurisdiction in the world where VAT is imposed by Sub-Nationals or local authorities. I challenge anyone who knows to tell me.

The divisive issues thrown into the mix are simply laughable. So a serious issue has been reduced into just the issue of the restriction of the sales of alcohol in some states. I am a beer man, and I truly love my beer. In all my years of drinking beer, the only times I have recalled paying VAT for beer was when I go to some highbrow hotels or clubs. The vast majority of beer sold and consumed in Nigeria is done at roadside bars, 'abeigi', street corner shops and in-house bars. I can also tell you for free that the volume of alcohol consumed in Sabon Gari in Kano will dwarf that consumed Ado Ekiti or Ijebu Ode.

Governor Wike says that he received 2billion monthly from VAT. He failed to tell you how much the local governments in Rivers State receives from VAT allocation from the FGN. For teasers, in 2020, Rivers State contribution to VAT coffers was 42 billion. The Rivers State Government and local governments got a total of 39 billion. That's a difference of 3 billion.

Now to some data for us to have a better understanding of the issue. Proceeds of VAT is shared amongst the 3 tiers of Government after 4% collection charge in the following way:

Federal Government - 15%
State Governments - 50%
Local Governments - 35%

Of the proceeds of VAT the FG and the FCT generates about 61% via imports from the seaports and international airports while the States generate 39%

Of the 39% generated by the States, Lagos and Rivers State generates less than 70%

Now imagine a situation where the courts strikes VAT off the exclusive list. The Federal Government and FCT get to keep their 61% while the States will hussle for the remaining 39%. So, what now happens to the Local Governments where the transactions actually take place

So, in the not too distant future, the States that are enacting their own VAT laws will realise that they were chasing a mirage. The version of 'fiscal federalism', of 'food is ready' mentality obtained from the courts is just a phyric victory. They don't even have the structures the FIRS built over the last 20 years to even be able to collect the VAT.

What will be their reaction in the circumstance? Brace up for thuggish tax collectors. States will enact their own versions of the VAT law to include things like food that were exempt from the federal law. At the point of buying a goat VAT will be paid. At the point of slaughter VAT will be paid. At the point of eating it at a restaurant VAT will be paid. There will be multiple taxation, increased inflation, and the ease of doing business will be more difficult, as well as and cost of doing business will become higher.

Lagos and Rivers States pride themselves as the biggest contributors to VAT collection in Nigeria. This is another mirage. Lagos State for instance enjoys what you can term as 'headquarters effect'. What this means is that for tax reporting purposes companies with headquarters in Lagos file their VAT returns there. For instance, a company like MTN which sells airtime and internet services all across the country file their VAT returns in Lagos. In Rivers for instance, NDDC has its headquarters in Port Harcourt. If it goes to Innosson Motors in Enugu to buy vehicles, it files its VAT returns from Port Harcourt.

Let me end by going back to the background I alluded to in the beginning.

There are two basic things making the state governments to react the way they are now.

1). Local Government autonomy is bitting hard on them. They are finding it increasingly difficult to corner the resources of the LGAs especially with the NFIU breathing down their necks
2). The Governors are angry that the 3% of COPEX in the PIA is going directly to the oil bearing communities. They want it to come to the state governments just like the 13% derivation.

Interestingly, in the agenda there are sub agendas. Some are being blind sided by the sheninighans playing out. Ultimately, there will be many losers, including those cheering for the faux fiscal federalism carved in the image and likeness of the key players.

'Siddon look' mode activated�

Anthony Inaede

Trash..


When the states win in court... The 61% fg generate via Sea ports will be paid to the states.. Fg establishments will pay VAT to states

1.Interesting article.

2.I have always been suspicious about the VAT thing...and I always knew the governors were using it to pull wool over our eyes. But this article is very detailed and shows us how them governors are doing so.

3.But for me, the VAT thing obscures the fact that Nigeria is still very very undertaxed. That one is where government at all levels have failed. State governors , IMHO, are using the VAT thing to avoid raising taxes on the vast majority of their people who don't pay taxes....both North and South by the way. But even then, the VAT thing is going to eventually force them to tax people more anyway...if they are successful in their endeavor.

4.And Buhari still has not diversified the economy yet. Which is the reason why states are now dragging over VAT.

Trash.

The article is full of misinformation and baseless lies

vedaxcool:
Have you noticed almost 80% of the response are from unintelligent folks who have little capacity to engage reasonably.

The most worrying angle to the VAT crap is the bigotry, tribalism and jingoism brought into an issue that is basically a legal issue.

The op tries to educate and explain the issues involved.

See who is talking about intelligence..


U and intelligence na words and opposite

Vat can be collected at different points but is only paid for at the consumption end

debayun:



Wow now I'm educated about it I knew something was fishy

For your sanity don't believe any lie that paid propagandist put up thr..

DubaiLandLord1:
But, the FG shouldn't be the ones in charge of collecting VATs in a Federal system of Government.

In fact, it was under IBB the states agreed that the FG should start collecting it on there behalf.

You obviously don't know what u are saying

blackpanda:


You obviously don't know what u are saying

Then tell me the main fact

DubaiLandLord1:
Then tell me the main fact

Go and read your constitution pls

blackpanda:


Go and read your constitution pls

is it a crime if you show me where it states in the constitution that FG is in charge of collecting VAS?

DubaiLandLord1:
is it a crime if you show me where it states in the constitution that FG is in charge of collecting VAS?

U no go school Open ya eyes and read. U mustnt be spoon fed always

blackpanda:


U no go school Open ya eyes and read. U mustnt be spoon fed always

Mtchewww

You no get talk.

Bye bye

There are lot of advantage and disadvantage about this VAT issue but I want state to collect cause it will make them develop and reduce partially we have now but back to OP example...do you even know that VAT is paid at every level of transaction just that the seller deduct the VAT he paid at buying from selling and paid the difference to FIRS

And other thing is that many states will now know that they generate huge tax return cause majority of VAT paid in Lagos occur in other states while they remit the money to FIRS office in Lagos due to HQ status and that will make the state develop... don't you want state to develop that you are always against anything to develop the state

I believe we should be fighting for how LG will get their own fair of the money instead of shouting up and down