Despite the legal battle on whether it should be states or Federal Government that should collect the Value Added Tax (VAT), Lagos State government has splashed N800m on a consultant to recover VAT accrue to the state.
The contract, it was gathered, was awarded to Andersen Nigeria by the state Ministry of Finance and was titled, ‘Recoveries of Value Added Tax payable to Lagos State Internal Revenue Service (LIRS)’.
Curiously, the contract was awarded despite there is no finality yet by the court on who should collect VAT between the states and FG.
The source, who provided the information, disclosed that the contract was awarded in the last quarter of last year.
According to him, how on earth will you engage a consultant on a case that has not been concluded or are they saying they are preempting the court. “It is only if they are saying that they know Lagos State will win the battle in the court and it is surely going to be immediately after the case has been decided in favour of the state that you can engage a consultant to do that kind of job. Was it not too early to award such contract? This is why I feel something is fishy about the whole process,” he said.
The quest by Lagos State to boost its Internally Generated Revenue (IGR) through VAT came after the Federal High Court ruling in Port Harcourt issued an order restraining the Federal Inland Revenue Service (FIRS) from collecting VAT and Personal Income Tax (PIT) in Rivers State.
In its ruling, the court directed Rivers State government to take charge of the collection. Rivers State (plaintiff) had filed a case, with suit No. FHC/PH/CS/149/2020, against the FIRS (first defendant) and the attorney general of the federation (second defendant) over demands, threats and intimidation of the state residents to pay PIT and VAT by the tax agency.
The state government had sought 11 reliefs from the court. These include a declaration that 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 according to provisions in Part II (concurrent legislative list) of the Second Schedule of the 1999 constitution as amended.
The court, presided by Justice Stephen Pam, dismissed the preliminary objections filed by the defendants that the court lacks jurisdiction to hear the suit and as such the case should be transferred to the court of appeal for interpretation.
Pam argued that after a thorough assessment of the issues raised by the plaintiff and the defendants, the plaintiff proven beyond doubt that it is entitled to all the 11 reliefs it sought in the suit.
The judge thus granted all the reliefs sought by the state, as there is no constitutional basis for FIRS to demand and collect VAT, withholding tax, education tax and technology levy in Rivers state or any other state of the federation.
So, following Rivers State success in the court, other states in Nigeria including Lagos lashed on the judgment to argue that it could go ahead to collect VAT within their jurisdictions. It was on this basis that Lagos State government directed the FIRS to stop issuing demand notices for payment of VAT in the state and demand that the FIRS render accounts, within seven days, of all sums it collected as VAT in the 2021 in the state.
Reacting to Lagos State’s position, the FIRS appealed, as well as filed a stay of execution, advising the public for a status-quo on the payment of the taxes.
FIRS also said: “The instant judgement of the Federal High Court, Rivers State, is in conflict with the extant judgement of the Federal High Court, Kogi State on the same subject matter i.e. the validity of VAT Act as administered by the service.
“The conflict created by the later judgement can only be resolved by the appellate court; and the right of the appellate court in this wise should not be compromised.
“In view of the foregoing, parties have to maintain the status quo ante (i.e. their positions before the instant judgement of the Federal High Court, Rivers State).
“The FIRS shall continue to collect VAT and administer the VAT Act until the final resolution of the legal dispute by the relevant appellate court.”
Lagos also followed Rivers State to immediate passed a bill, which was signed into law by Governor Babajide Sanwo-Olu to enable it collects VAT, though it has not started collecting it.
Attempt to get Lagos State government to explain why the contract was awarded despite the ongoing court case was not successful, as the Commissioner for Finance, Dr Rabiu Olowo did not pick his calls.