The tax war between the Federal Government and some states has taken a new twist as 36 states of the federation, through their Attorneys-General, have dragged the Federal Government to the Supreme Court over alleged failure to remit funds generated from stamp duties into state accounts.
This comes as the pan-Yoruba socio-political organization, Afenifere, lampooned the government over alleged actions and policies capable of impeding the practice of true federalism in Nigeria, just as it commended the Rivers State Government for initiating the legal process.
Meanwhile the Institute of Chartered Secretaries and Administrators of Nigeria, ICSAN, said states collection of Value Added Tax, VAT, might stop inter-state migration of Nigerians.
But the Lagos Chamber of Commerce and Industry, LCCI, said the face-off between the Federal Inland Revenue Service (FIRS) and Lagos and Rivers State governments over right to VAT collection may lead to harassment of businesses by agents of FIRS and the states at the same time.
The Attorney-General of the Federation and Minister of Justice, Mr. Abubakar Malami, SAN, was cited as the sole defendant in the suit marked SC/CV/690/2021.
‘States, not FG should collect stamp duty’
The states are contending that they are legally vested with the authority to administer and collect stamp duties on all transactions involving individuals and persons within their territories, and not FG.
Specifically, they are urging the apex court to determine; “Whether having regard to the provisions of Section 4(2) of the Stamp Duties Act Cap. S8 of the Laws of the Federation of Nigeria read in conjunction with the provisions of Section 163, items 58 and 59 of the Second Schedule part I and items 7 (a) and (b) of the second Schedule part II and other provisions of the Constitution of the Federal Republic of Nigeria, 1999 (as amended), the defendant (Malami) could claim, retain, distribute or in any other manner deal with the monies or sums collected as stamp duties on individual persons transactions within the respective states of the plaintiffs without reference to, concurrence of, input or agreement of the plaintiffs?
“Whether having regard to the mandatory provisions of Section 4(2) of the Stamp Duties Act Cap. S8 Laws of the Federation of Nigeria (LFN), the plaintiffs (all the state attorneys) are not the sole authority to administer and collect stamp duties on all transactions involving individuals/persons within their respective states?
“To ascertain whether or not states are entitled to 85% of all stamp duties collected on electronic money transfer levy, on electronic receipts or electronic transfer for money deposited in deposit money banks and financial institutions, on any type of account to be accounted for and expressed to be received by the person to whom the transfer or deposit is made in the plaintiffs’ respective states.”
What we want from Supreme Court, by states
Upon determination of the legal questions, the states want the Supreme Court to declare that they are the sole authorities entitled to administer and collect stamp duties on all transactions involving individuals within their respective states.
They are also seeking “A declaration that the defendant is not entitled to collect, administer, or keep the proceeds of any stamp duties on transactions involving individuals within the respective states of the plaintiffs or any manner interfere with the Plaintiff’s right and authority in the administering the provision of Section 4(2) of the Stamp Duties Act Cap. S8 Laws of the Federation of Nigeria.
“A declaration that the plaintiffs are entitled to all the sums of money collected by the defendant as stamp duties through whatever source or means in their respective states from 2015-2020 and thereafter till the time of the judgment of this honourable court with respect to individual persons’ transactions.
“A declaration that the plaintiffs are entitled to 85% of all stamp duties collected on electronic money transfer levy, on electronic receipts or electronic transfer for money deposited in deposit money banks and financial institutions, on any type of account to be accounted for and expressed to be received by the person to whom the transfer or deposit is made in the plaintiffs’ respective states.
“An order of perpetual injunction restraining the defendant, by himself, privies, agents or any persons by whatever name or howsoever called from appointing anyone for the purpose of collecting Stamp Duties on individual persons’ transactions within the respective states of the plaintiffs henceforth.”
They are further praying the court for an order, directing FG to account for and pay back all monies collected by way of stamp duties on individual persons’ transactions within their respective states, from 2015 to 2020 and thereafter till the time of the judgment.
Likewise, the statement of claims added, “An order of the court directing the defendant to pay over to the Plaintiffs all the sum of monies amounting to One Hundred and Seventy Six Billion, Sixty Seven Million, Four Hundred Thousand Naira (N 176,067,400,000,00) representing ascertained and admitted collected stamp duties on individual persons’ transactions within their respective states for the period of 2015- 2020 and thereafter till the time of the judgment of this honourable court or any other sum as the plaintiffs may be found entitled by the honourable court.
The apex court has not fixed a date for the matter to be heard.
Corporate executives offer way forward
Commenting on the new front of taxation battle, Dr. Muda Yusuf, economist and former Director General of LCCI, said: “All arms and levels of government have a responsibility to uphold the constitution. This is what they have all sworn to do.
“If the position of the constitution is that stamp duty should be remitted to the federation account, then so be it. Doing otherwise would amount to illegality.
“It is interesting that the sub nationals are getting bolder and more assertive. We are beginning to see some flavour of federalism in governance. It is a good development.”
According to David Adonri, Managing Director/CEO, Highcap Securities, the fact that the FGN failed to distribute stamp duty revenue to states is an unprecedented betrayal of confidence as well as a sign that FGN is in a precarious financial situation.
He stated that the failure underscores the importance of the current impasse between the Federal Government and the Rivers and Lagos states government over Value Added tax (VAT) collection.
Wishing that the Federal Government has not gone bankrupt, Adonri said: “Stamp duty as tax, is a money spinner that ought to enhance the financial strength of all tiers of government. This mess calls to question the sincerity of FGN in collecting tax on behalf of other tiers of government. This underscores the importance of Wike’s VAT victory which forestalls the misappropriation of that revenue by FGN just as witnessed with stamp duty.”
Afenifere challenges other states on federalism
While commending the action of Rivers State in challenging the FG over VAT, the Afenifere also urged other state governments to use the opportunity provided by the landmark judgments on VAT to explore other areas that the Constitution empowered them to assert themselves as federalists.
Afenifere, in a statement by its National Publicity Secretary, Jare Ajayi, noted that the rulings by Justice Stephen Dalyop Pam of the Federal High Court, Port Harcourt on August 9 and on September 6, have earned the judiciary in Nigeria an epaulet as an institution that is not only capable of ensuring justice but is actually working on deepening federalism in the country.
Afenifere, however, noted that the manner of distributing VAT revenue is patently unfair, unjust and is pitched against the hardworking while rewarding the indolent.
Citing an instance, the statement said: “Lagos State which generates as much as 55 per cent of this revenue receives less than 10 per cent while most states where less than 5 % is generated get the same amount that Lagos gets. It is quite distasteful.
“The sum collected by the FIRS is shared among the three tiers of government, with the Federal Government taking 15 per cent, states 50 per cent; local governments, 35 per cent. From the foregoing, it would be seen that the federal government is taking undeserved larger chunk because when 50 % is shared among the 36 states, what each state gets is a paltry sum. Same for 774 local government councils that share 36 per cent.
“We call on the state governments to use the opportunity provided by these landmark judgments to explore other areas that the Constitution empowers them to assert themselves as federalists.
“In other words, they should step up actions that will liberate the states from the stronghold of the federal government that has turned Nigeria into a Unitary State – in contradistinction to the federal spirit prescribes by the Constitution.
“They should be rest assured of Afenifere support as they give vent to power devolution and entrenchment of true federalism in Nigeria.
“Areas in which the states need to assert themselves include agriculture, health, education, electricity, physical planning, title registration, registration and production of vehicle number plates and casino licensing etc as Lagos State Government did in the past.
“To us in Afenifere, the attempt by the Federal Government to establish so called Farm Estates in all the 109 Senatorial Districts is another way of imposing the rejected cattle colony and RUGA on Nigerians.
“It is also another way of defying the federal spirit of the Constitution as lands are vested in the state governors. If the governors granted the lands being asked for, cattle colonies would be established in these estates as revealed in the view expressed by the Executive Secretary of the National Agriculture Land Development Agency, NALDA, Prince Paul Ikonne. States should reject this attempt particularly since the farm estates NALDA is using as an excuse to grab lands for the Federal Government are familiar territory for many states especially in the South West that inherited farm estates from the defunct Regional Government of late Chief Obafemi Awolowo.
“As for the fear of possible multiple taxation that collection of VAT by states may occasion, we suggest that a roundtable discussion can be held on this thorny aspect.
“Finally, we call on the FIRS to resist the temptation to keep appealing the judgment that empowers states to collect local taxes as such a step is another assault on the federal system that we are supposed to be running.”
States collection of VAT may curb inter-state migration —ICSAN
The ICSAN believes that collection of VAT by states will help in rebalancing human resources distribution away from Lagos.
Speaking at a pre-conference briefing to announce its 45th annual conference and dinner in Lagos, President of ICSAN, Gbenga Owokalade, said: “The bulk of the people who make life easy in Lagos, they are not Lagosians. They came from other states. So, maybe it will help us to even distribute the population to the right places.
“So people who have also migrated to Lagos because we think that Lagos is more prosperous, it is a matter of going back to our different states and ensure that we put in place those same methodology that will ensure that our states also become more viable. There is no state that is not endowed. What we have created for us as a nation is that we have allowed the easy way out to run our lives and that is where we have found ourselves.”
Owokalade further stated: “VAT is basically a sales or consumption issue that is basically supposed to sit with the state but for whatever reason, the federal took it up and was now being shared among all state governments. And to an extent, it has become one of the strongest bases of Gross Domestic Product (GDP) growth in Nigeria.
He said: “It is beyond the fact of winning a court case. It is a function of what is the import of that judgement on the Nigerian nation. Several times people have talked about physical federalism and all of those things and there have been arguments here and there but the judgement is speaking to the heart of some of these issues. Why will you collect resources from an area and that area does not enjoy the bulk of that thing and then you share out?
“Some of these challenges that Nigerians are facing are because some of these things don’t sit properly so before you know it, it becomes controversial.
“If my state is generating such an amount, why should I not be encouraged to hold on to that, to impact well on my state where that resource is being gotten from? Why should I be shortchanged when it comes to defending some of those issues?
“I have also heard people have also said states don’t have the capacity. I think that is the worst argument I have ever heard. Those who practice at the federal level who handle it at FIRS are human beings and they come from states.”
LCCI worries over VAT controversy
On the face-off between the FG and states over VAT collection, the LCCI has hinted that businesses may be subjected to double harassments.
The Director General, LCCI, Dr. Chinyere Almona, said: “The first concern of the Chamber is the confusion that businesses face as to who is in charge of VAT collection. This is not healthy for the business environment. Companies may soon be subjected to harassment from the FIRS and the states’ revenue services demanding the same tax. Businesses may also be subjected to a cumbersome process by the states that may not already have the required operational and transactional structure to collect VAT.
“Whatever happens, there is a need for more accountability and more judicious use of tax revenues at the Federal, State, and Local Government levels. Also, we need to deploy enhanced technology in tax administration to guarantee proper accountability, monitoring, and evaluation. LCCI also expects that the collection agency empowered by the law should assume the responsibility of investing in critical infrastructure that would support a conducive business environment.
“There should be proper accountability and acknowledgment for collected VAT revenues by the states to avoid double tax payment by businesses if at any time in the future the authority to collect VAT returns to the FIRS. Companies should not be subjected to unnecessary hurdles and be made to pay the same tax twice by different agencies.”