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It is not your typical beer parlour brawl but believe me, it is still about beer. Every time you pay for goods or are paid for services, you pay extra money to the federal government. The payment is misnamed value added tax, VAT. The Federal Inland Revenue Service, FIRS, collects this money throughout the country. It deducts four per cent commission on all collections and pays the rest to the distributive pool, the federation account from where the Revenue Mobilisation and Fiscal Commission shares this and other collections among the three tiers of government according to the extant law on revenue allocation formula.
Sometime last month, Nyesom Wike, governor of Rivers State, decided to end this practice in his state. Tax is on the concurrent legislative list. He took advantage of that. He did not think it was the business of the centre to collect VAT from the states and deny them of a vital source of internal revenue. The centre was cheating the states. Not fair, he said. He enacted a law that bars the Federal Inland Revenue Service, FIRS, from collecting VAT in his state. He vested the authority on a state agency.
FIRS would lose a huge chunk of its revenue. It promptly challenged the law at the federal high court, Port Harcourt. The court took a dim view of its action. Justice Stephen Pam ruled that the state government and not the federal government should collect VAT and income tax. The case moved to the court of appeal where the final decision, as of this writing, was yet to be taken.
Lagos State followed suit and enacted a similar law on VAT collection. Some other states have indicated their intention to enact similar laws if Rivers State bloodies the nose of the federal government at the court of appeal.
The country is caught up in the swirl of controversy that appears, not strangely, to have pitted the north against the south. When the two run on parallel lines as they are wont to do, emotion turns into black smoke and we downgrade the fundamentals of every attempt to chip at the granite of the debilitating nature of our federalism; to free the country from its present state of confused federalism and set it on the clear path of true federalism and best practices in federalism in which the constituent states cease to be beggar states at the mercy of the grasping centre.
So, what has beer got to do with this latest brawl in a nation given to brawls? It is this: VAT is also collected on alcohol. The sharia states do not permit the sale or consumption of alcohol in their territories. Those who support Rivers and Lagos states in this controversy argue that if alcohol is haram in those states, then the money derived from it through VAT should be haram and not be allowed to soil the purity of their religious zeal.
George Sekibo, chairman of the navy, said: “By collecting part of the proceeds from alcohol, are they not indirectly drinking it?” Several other people have expressed similar sentiments but this argument is a degradation of the fundamentals of the step taken by Wike and Babajide Sanwo-Olu that might, just might, lead to the resolution of one critical issue in the relationship of the centre with the states. And that is fiscal federalism; a phrase that simply means allowing the states to own their own money. It is a touchy issue dodged by every president because the more freedom the states have over their money, the less the federal gets and the less it can bear down on the states. Enyinnaya Abaribe, the senate minority leader, said the step taken by Rivers and Lagos states “… affirms fiscal federalism which Nigerians have been clamouring for.”
Three national conferences, namely, 1994/1995 constitutional conference, the 2005 national political reform conference, the 2014 national conference as well as the APC Committee on True Federalism looked into this thorny issue but none clearly resolved it. Each of them recommended some tinkering with the revenue allocation formula to stop the centre from treating the states as fiscally-dependent entities or what the late Chief Obafemi Awolowo called “glorified local governments.”
VAT is a major source of revenue for the federal government. FIRS, according to The Punch of September 12, submitted documents to the national assembly pushing for the legislature to make its VAT collection a constitutional duty. In the said document, it said it projected a revenue of N2.44 trillion from both import and non-import VAT in 2022. Its commission would be a tidy N96 billion to fund its profligate ways of paying generous bonuses to its staff. It has good reasons to fight Wike in court and seek a constitutional imprimatur for its work.
While the case winds its weary way through the courts, the rest of us should discard the tattered sentiments that we habitually use to drag into play issues that debase the rationale for a less stifling federalism. This controversy presents us with a good opportunity to once more take some critical look at the nature of our federalism. We should not waste it on sentiments or cast it as an argument between the north and the south. The Northern Elders Forum said that the north is rich enough to take care of itself without VAT from, I suppose, the south. But this is about the right of the constituent units of in a federal system of government, not their wealth.
At issue are the fundamental principles of federalism. We must keep that in perspective and refuse to be lost in the woods of sterile sentiments. It is neither about the north nor the south. It is not about the sale and consumption of alcohol either. At least, Wike was not motivated by that. More likely, he discovered section 163 1(a) of the constitution that recognises the right of the states to collect taxes in their territories and pay them into their consolidated revenue fund. If the court gives Rivers the thumbs up, the northern states too would exercise the full right to boost their internal revenue with their VAT collection. VAT is not alcohol tax.
The wretched state of most of the states owes to their lack of viable sources of internal revenue. Once VAT is paid into the common distributive pool, the share of each state is much less than what is collected from it. It makes eminent sense for the states to collectively push for the right to collect VAT to at least stifle the jarring noise of the empty barrels that attends their treasuries. The northern states need the VAT windfall and should need no one to tell them to push for it.
However the case turns out in the end, at least two salutary developments will flow from Wike’s dare to poke his finger in the eye of the federal government. One, it has exposed the assumption that every power grab by the federal government has a constitutional imprimatur. The first step towards true federalism, fiscal and otherwise, is for the states to challenge many of these assumptions.
Two, Wike has shown the way, to wit, the path to true federalism does not lie through national conferences but through systematically chipping at the granite of the immoveable federal authorities. Wike’s is the second recent assault on the paradox of monolithic federalism. Not too long ago, Lagos State enacted a law ousting the power of EFCC to investigate and prosecute its former and serving public officers and civil servants on alleged corruption. That duty now belongs to the state government. This, along with the issue of VAT, are courageous attempts to test the placid waters of our national progress held hostage by the fears of ruffling the feathers of whoever takes temporary residence in Aso Rock.
One thing is not going to happen under President Buhari. The country will not be restructured. So, let the state governors find loopholes to chip at federal powers. Buhari has never tried to educate himself on what restructuring is all about. He just hates the sound of the word and believes that what he does not personally like is not good for the country. He may be right. Reminds you of the late President Charles de Gaulle who once declared, “I am France.”
Late this hour in the life of the administration it does no harm to remind the president of what was thought to be the hallowed promises of his party, APC., to which he was a party. From its manifesto, I picked out its promise a) to “implement efficient public financial management strategies and ensure true federalism,” b) “restructure governance in such a way that kick starts our political economy so that we can begin to walk the path of our better future” and c) to create a federal system with “more equitable distribution of national revenue to the states and local governments because this is where grassroots democracy and economic development must be established.”Lofty sentiments but broken promises. No big deal. Napoleon said promises are made to be broken.
