The agitation for true Federalism was taken a definitive step further on Thursday, August 19, 2021, when Governor Nyesom Ezenwo Wike, signed the Rivers State Value Added Tax Bill, 2021 into law at the Government House, Port Harcourt.
The Law vests the Rivers State Government with power and authority to impose, charge, demand and collect Value Added Tax on taxable goods and services within the jurisdiction of the State except otherwise exempt under the law. By the tenor of the said Law, the Federal Government through the FIRS ceases to have the taxing competence to impose, demand and collect Value Added Tax ( VAT) within Rivers State.
The decision of the Rivers State Government to enact the Rivers State Value Added Tax Law, No. 4 of 2021 was informed by the judgment of the Federal High Court Port Harcourt Division (coram Hon. Justice Stephen D. Pam, J.,) delivered in Suit No. FHC/PH/CS/149/2020 (Attorney General Rivers State v. Federal Inland Revenue Service & Anor) on 9th August, 2021 upholding the constitutional authority and competence of the Rivers State Government to impose, charge, demand and collect VAT on taxable goods and services within Rivers State and declaring that the Federal Government through the FIRS has no power to impose and collect VAT within the State.
The court also issued an order of perpetual injunction restraining the Federal Inland Revenue Service 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 lncome Tax (PIT) and Value Added Tax (VAT).
As to be expected, the FIRS, not only quickly challenged the ruling at the same Federal High Court, on August 15, 2021 by seeking a stay of execution of the Judgment in order to stop the Rivers State Government from commencing collection of Value Added Tax but further approached the Court of Appeal and in the interim, went about bullying corporate bodies and business entities from paying the VAT to the Rivers State Government even when they knew that an appeal does not serve as a stay neither was there anything to stay in a declaratory judgement such as the one delivered by the Honourable Court in the instant suit.
Convinced that Rivers State was constitutionally empowerd to collect PIT and VAT, Governor Nyesom Wike followed all the established and appropriate mechanisms of Legislative due process which culminated in the signing of the Bill into Law and in the true spirit of a law abiding Government, stayed action on the commencement of collection of VAT until the application for stay of execution filed by the defendants had been determined at the Federal High Court.
On Monday, September 6, 2021, Justice Stephen Dalyop Pam dismissed the Application by the Federal Inland Revenue Service, FIRS, seeking to stop the Rivers State Government from commencing collection of Value Added Tax (VAT) and ruled that granting the application would negate the principle of equity.
Ruling further, Justice Pam noted that the Rivers State Government has duly enacted the Rivers State Value Added Tax No. 4, 2021, which makes it a legitimate right of the state to collect VAT and that the said law remains valid until set aside by a court of competent jurisdiction.
According to learned trial Judge, granting the prayers of FIRS would amount to the court reversing its judgment which the court cannot do and accordingly dismissed the application.
It was therefore against this backdrop of judicial interpretation and constitutional clarity, that we must appraise the Statewide Broadcast of Govenor Nyesom Wike ordering the immediate enforcement of the State Value Added Tax Law, No. 4 of 2021 and the resumption of VAT collection across the entire state, following the rejection of the application to stay the earlier judgment and dismissal of the stay of execution application filed by FIRS.
It is important to point out here that, contrary to the confrontational spin often woven around his interface with the Federal Government on specific issues, Governor Wike has always and rightly too, opted to test his convictions before the law and more often than not has emerged victorious thus affirming his determination to operate within the delineated competencies spelt out in the 1999 Constitution (as amended).
There is no gainsaying the fact that the Federal Government has seemingly appeared to be at war with the states, with most of its agencies riding roughshod and wielding powers over State Governments with the tacit support of the federal government without any constructional justification.
This negates and undermines the spirit of true Federalism, which Nigeria, as a country of federating states is constitutionally enjoined to practice.
As a mere agency of the Federal Government without any political authority the effrontery and impunity exhibited by the FIRS against the Rivers State Government was ill-advised and highly provocative.
The crux of the matter in this VAT saga, as rightly expounded by the Court is that, other than the taxes and duties specifically reserved for the Federal Government under item Nos. 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended, 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.
In other words, the constitutional power of the Federal Government to impose taxes and duties is only limited to the taxes listed in items 58 and 59 of Part 1 of the second schedule of the 1999 constitution as amended.
The Rivers State Government had 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.
Simply put, any exercise of legislative powers by the Federal Government which is 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 with 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, is unconstitutional, null and void.
Indeed, Governor Nyesom Wike had in several media fora after the Port Harcourt Federal High Court judgment, emphasized it loud and clear, that in addition to ensuring that the states are not short changed in collecting what is supposed to accrue to them via VAT and other taxes, the more important objective of the case, was to establish and bring to public notice and awareness, the constitutional illegality of the action of FIRS in collecting VAT in the states.
Like the Governor rightly pointed out in his statewide broadcast, “It is important to reiterate the fact that we did no wrong in exercising our legal right under our constitutional democracy to stop the continuing breach, denial and curtailment of the constitutional right of States to lawfully impose and collect value added and other related taxes within jurisdiction to the exclusion of the Federal Government.
“And in doing so our singular and progressive objective was to contribute to the advancement of fiscal federalism by enabling the federating States to explore and exploit their potential and capacity for generating greater internal revenues with which to fund their development goals and reduce the outdated over-reliance on pitiable Federal allocation and other handouts.”
It is worthy of note therefore that the very first state that embraced the earlier Port Harcourt Federal High Court Judgment granting states the authority to collect VAT, was none other than Lagos State, which has already started collecting the requisite taxes accordingly and other states have not only applauded the brave and courageous decision by Govenor Wike to expand the fiscal Federalism frontier they have also indicated willingness to embrace the Court Judgment too.
Meanwhile, FIRS has already gone to the appellate Court to ventilate its perceived grievances against the decision of the court since it feels that the judgment should have gone in its favour. In spite of the appeal, the FIRS has concurred that, “The natural consequences of the ruling is that the Rivers State Government will be collecting the VAT”
The fact remains that while this is just one Judgment in a plethora of so many yet to be litigated constitutional anomalies, the monumental leap and height it has scaled in the long drawn advocacy for true Federalism and indeed resource control and management by federating states in the country cannot be quantified.
Governor Wike, who recognized the natural option of some States with presently low economic activities and ethically restrictive social policies with economic implications to resist the Court Judgment, however pointed out that, despite the inherent fears, “fiscal federalism still remains the right path to economic self-reliance and sustainability for all our States and the benefits derivable from this case by all the States in the long run far outweigh the immediate revenue loss that some States may presently suffer.
“It is therefore very unfortunate that some State Governors are vainly conspiring to truncate this progressive reality in favour of the inequitable status quo so that the Federal Government can continue to rob Peter to pay Paul as the nation’s self-imposed tax master-general,” he declared.
Sounding a stern warning that the Rivers State Government is fully in charge of the State and will not tolerate any further attempt by the FIRS to sabotage or undermine its authority to freely administer the tax and other related laws in our own State, Governor Wike declared that, “Those who play with fire risks having their fingers burnt. Enough of the shenanigans”.
While assuring the states that “All that is required is for all of us to wear our thinking caps as elected Governors to collectively fight for the greater devolution of resources, responsibilities and powers to the federating States” Governor Wike pledged to Rivers people that his administration shall as usual make effective use of the expected proceeds from this tax to accelerate the development of our State and improve the wellbeing of everyone.
“For us in Rivers State, we will continue to ensure and project our constitutional rights to access all possible resources we can take hold both within and outside our geographical boundaries to advance the progress of our State,” he said.
Nsirim is the Commissioner for Information and Communications, Rivers State