VAT Politics and the Search for Focus (Part 2)

Lagos State Government joined the Rivers State Government earlier today and became the second State to enact its VAT Law in Nigeria. This event was indeed foreseen from Monday, September 6, 2021, when the Federal High Court (FHC) sitting at Port Harcourt, Rivers State in Attorney General for Rivers State v. FIRS & Another, refused to grant the FIRS’ application for the stay of execution of the August 9, 2021 decision of the FHC. The FHC had on August 9, 2021, declared the VAT Act 1993 (as amended), unconstitutional. Although the FHC’s August 9, 2021 decision was in the manner of a declaration of the law, in which case nothing was to be executed or executable, yet the FIRS had proceeded to apply for the stay of execution, apparently seeing the implication of the August 9, 2021 decision on its VAT revenue collection mandate for the Federation.

Having collected slightly in excess of N1trillion VAT as at H1 2021, our forecast using the ARIMA model was that FIRS should close its total 2021VAT collections at almost N2.2trillion. We could as well kiss goodbye to the forecast in the face of the ongoing VAT wars. Numbers should not lie. They should be as objective as the simplicity in which they are presented. Rivers State and Lagos State that currently lead the charge in the bid to collect their VAT revenues are 4th and 1st respectively in the VAT allocation schedule for the last 4 years. Please see Table 1 below. Clearly, their projections and bid is that they can collect more VAT from their territories than currently allocated to them by the current VAT pool sharing arrangement.

Table 1: 2017 to 2020 VAT Allocations to States (excluding Local Governments)

STATES2020201920182017Grand TotalRank
 LAGOS          101,228,612,223.95           92,415,488,722.36          90,821,985,031.46        79,681,872,430.08           364,147,958,407.851st
 KANO           25,562,205,690.31             21,022,241,383.10         19,540,497,055.20         20,497,223,394.79                86,622,167,523.402nd
 OYO         20,928,492,650.73            17,763,969,957.03        16,685,047,748.40            15,781,314,993.98                 71,158,825,350.143rd
 RIVERS           18,781,265,205.95          15,754,484,814.83           16,343,541,681.74          17,847,304,941.01               68,726,596,643.534th
 KADUNA             16,917,863,358.19         14,878,985,802.47           14,566,402,771.95             13,431,506,164.13              59,794,758,096.745th
 KATSINA         17,520,038,776.04            14,672,124,228.64           13,934,235,655.37        12,444,097,528.83              58,570,496,188.886th
 DELTA          14,681,602,247.87             13,565,466,459.61         12,484,868,981.05            11,184,219,950.47                  51,916,157,639.007th
 JIGAWA          14,523,557,686.94            12,780,831,420.16             12,381,157,768.16              11,142,121,353.38              50,827,668,228.648th
 AKWA IBOM              14,737,129,121.70            12,760,857,922.76           11,970,120,634.02         10,549,360,394.90              50,017,468,073.389th
 BAUCHI          13,569,207,904.64             12,182,578,663.25         12,007,910,880.69           11,261,470,507.40                 49,021,167,955.9810th
 BORNO            14,233,462,211.49            12,209,714,698.95           11,645,763,100.00         10,645,446,781.49               48,734,386,791.9311th
 ANAMBRA           13,441,693,578.60          12,088,950,552.74           11,904,952,759.82           10,961,533,077.09               48,397,129,968.2412th
 IMO          13,836,687,962.20            12,189,785,607.64            11,582,114,598.68          10,586,022,105.57                48,194,610,274.1013th
 NIGER            13,769,172,994.06            12,009,421,795.99             11,529,731,929.53        10,594,202,066.48              47,902,528,786.0514th
 BENUE           13,493,387,718.70            11,937,770,779.80            11,569,532,928.27          10,762,066,789.72                47,762,758,216.4915th
 OGUN           12,870,157,306.85           12,032,863,794.89           12,032,097,913.50            10,751,046,135.81                  47,686,165,151.0516th
 OSUN           13,690,222,553.72                11,671,159,791.34            11,080,115,620.43         10,066,550,587.46             46,508,048,552.9617th
 SOKOTO          12,907,683,585.54             11,363,909,818.98          11,000,446,194.82           10,225,573,265.55              45,497,612,864.8818th
 EDO             11,569,246,946.17             11,168,334,835.57               11,199,301,671.77           10,447,881,317.93              44,384,764,771.4319th
 ENUGU           11,772,442,938.86          10,985,036,074.77          10,765,926,292.80          10,334,678,697.39             43,858,084,003.8120th
 KOGI          12,046,813,892.84          10,802,820,970.35           10,648,127,201.36             9,885,532,503.21               43,383,294,567.7621st
 ONDO            11,697,879,314.88            10,806,519,969.74          10,663,454,525.97         10,089,254,148.43                43,257,107,959.0222nd
 KEBBI            11,945,274,717.48           10,740,148,705.36             10,627,127,412.13            9,820,339,309.96                43,132,890,144.9223rd
 ADAMAWA         12,020,302,570.00          10,690,469,964.04          10,557,494,867.01            9,853,498,475.18                  43,121,765,876.2124th
 PLATEAU           11,346,698,072.94         10,408,805,140.54         10,432,257,478.53              9,944,724,117.99                42,132,484,810.0125th
 ZAMFARA          10,680,684,756.18         10,029,282,600.00            10,130,776,461.76             9,706,571,789.03               40,547,315,606.9726th
 ABIA           10,721,947,797.50              9,990,543,210.70         10,058,507,649.53            9,456,663,630.36              40,227,662,288.0927th
 CROSS RIVER            10,951,518,856.39          10,084,146,688.54           10,040,231,149.25              9,591,634,962.37                40,667,531,656.5528th
 YOBE          10,292,398,685.24                9,569,247,315.17            9,459,809,347.61            9,023,989,999.42             38,345,445,347.4429th
 EKITI         10,091,248,454.08              9,452,727,933.76          9,438,394,064.58             8,972,419,154.64              37,954,789,607.0630th
 KWARA          10,097,810,682.89             9,344,929,496.59            9,466,445,451.32            8,999,891,563.48                37,909,077,194.2931st
 TARABA            9,997,823,332.80              9,252,249,581.03             9,320,964,291.03           9,034,210,804.65               37,605,248,009.5132nd
 EBONYI           9,906,408,077.76                9,143,069,317.96            9,314,286,985.48            8,935,748,159.04                37,299,512,540.2533rd
 GOMBE               9,251,901,679.75               8,914,343,814.12               9,141,059,315.05            8,984,123,486.69                 36,291,428,295.6134th
 NASSARAWA            8,893,148,052.07                8,591,545,105.10               8,741,356,701.61             8,578,821,975.63             34,804,871,834.4235th
 BAYELSA             7,979,357,383.55             8,134,926,920.88            8,770,920,188.62            9,229,859,247.60                34,115,063,740.6536th
TOTAL557,955,348,988.84501,409,753,858.75491,856,964,308.49459,302,775,811.142,010,524,842,967.21

Source: National Bureau of Statistics

Thus, the challenge before Lagos State will be for it to collect more than the N8.4billion monthly average VAT it was allocated in 2020 and Rivers State, its 2020 monthly average N1.5billion VAT allocation. This will be easier said than done given the amount of work the States will need to put in, to, both in the short and long run, out-perform what they used to collect from the Federal VAT pool that FIRS and the Nigeria Customs Service (NCS) sat over. Yes, the VAT pool is far more than the VAT collected from the territories of each State (Local VAT). Local VAT which constitutes about 50% of VAT collections in the 4-year period 2017 to 2020. The other constituents of the VAT pool are Foreign VAT (28%) and Import VAT (23%). Import VAT is administered by the NCS. Please see Table 2 below. It is arguable for the Federal Government that States that choose to administer and collect their Local VAT may be unable to partake in the allocation of Foreign VAT and Import VAT, both of which, by the fact that they are derived from international commerce, are, arguably within the jurisdiction of the Federal Government to administer.

Table 2: 2017 to 2020 Sectoral VAT Collections

SECTORS2017201820192020TOTALRANK
 Other Manufacturig               119,601,368,176.23                                      122,897,161,774.27                 124,142,611,667.71                          154,153,558,587.70                  520,794,700,205.911st
 Professional Services                 87,523,201,728.90                                     86,282,476,643.53                  112,060,151,115.46                           162,318,807,473.91                  448,184,636,961.802nd
 Commercial and Trading                 49,503,756,607.71                                       63,062,351,082.17               59,807,465,995.39                             77,437,296,178.14                   249,810,869,863.413rd
 State Ministries & Parastatals                 40,885,060,921.19                                      42,951,632,774.50                 41,908,113,523.00                              59,038,998,114.13                  184,783,805,332.824th
 Breweries.Bottling and Beverages                 35,709,303,507.11                                        35,927,693,179.37              40,737,606,465.05                             59,692,218,396.30                    172,066,821,547.835th
 Oil Producing                 45,131,043,970.77                                    37,447,876,474.86               38,792,653,955.47                               43,381,531,776.21                       164,753,106,177.316th
 Federal Ministries & Parastatals                 20,439,822,795.21                                      19,443,151,404.00             34,803,989,509.44                           26,266,442,445.39                  100,953,406,154.047th
 Transport and Haulage Services                 15,811,631,083.17                                         7,915,905,446.25              24,348,817,028.43                             43,513,031,942.74                      91,589,385,500.598th
 Banks & Financial Institutions                 20,756,588,124.17                                       18,497,761,535.40                   17,152,731,227.54                            24,769,287,182.28                       81,176,368,069.399th
 Other VAT                   9,781,216,716.94                                      12,937,258,242.86                 15,137,910,700.28                            22,903,174,307.74                      60,759,559,967.8210th
 Building and Construction                 13,278,604,753.38                                       10,003,531,653.79                 10,175,905,922.89                            11,385,042,309.28                   44,843,084,639.3411th
 Pioneering                   5,904,203,441.45                                          7,991,733,925.06             10,278,840,043.44                             8,656,508,890.27                      32,831,286,300.2212th
 Oil Marketing                   6,432,386,721.02                                         7,731,343,828.26                    8,546,777,521.61                              9,588,342,933.89                     32,298,851,004.7813th
 Hotels and Catering                   4,964,184,630.45                                        6,289,942,007.33                  8,290,374,422.12                             8,309,086,574.58                    27,853,587,634.4814th
 Stevedoring, Clearing and Forwarding                   3,708,324,631.12                                         5,134,412,580.58                  5,632,850,492.25                                9,106,663,881.76                        23,582,251,585.7115th
 Conglomerates                   5,300,756,044.04                                          5,126,737,042.67                 4,547,341,420.48                                6,595,324,333.10                      21,570,158,840.2916th
 Gas                   5,471,916,628.11                                        5,743,996,586.00                 4,559,495,493.46                               4,855,222,602.41                      20,630,631,309.9817th
 Petro-Chemical and Petroleum Refineries                   4,872,244,802.94                                       4,660,800,148.43                 4,073,539,432.00                               5,873,655,282.39                      19,480,239,665.7618th
 Properties and Investments                   3,069,882,922.11                                           4,158,314,186.65                  4,041,394,099.76                              4,536,476,245.55                     15,806,067,454.0719th
 Offshore Operations                   2,271,217,381.59                                        2,562,038,924.66                   2,713,437,659.70                                3,918,345,163.40                         11,465,039,129.3520th
 Agricultural and Plantations                   1,873,660,017.34                                         2,467,931,464.23                 2,620,848,986.93                               4,335,825,676.52                        11,298,266,145.0221st
 Automobiles and Assemblies                   1,754,365,770.23                                           1,556,332,107.90                 2,620,848,986.93                               2,826,819,660.02                        8,758,366,525.0822nd
 Publishing,Printing, Paper Packaging                   2,523,548,678.09                                        1,635,548,408.52                      1,751,128,713.44                                 2,077,691,267.31                          7,987,917,067.3623rd
 Chemicals, Paints and Allied Industries                   1,500,006,633.73                                          1,389,433,765.53                 1,894,770,348.34                                2,715,643,553.89                        7,499,854,301.4924th
 Local Government Councils                      640,118,863.52                                          1,538,409,372.51                   1,963,896,832.06                              1,901,084,945.08                           6,043,510,013.1725th
 Textile and Garment industry                      969,445,167.10                                           1,291,967,505.95                   1,478,224,188.36                              1,199,208,848.00                        4,938,845,709.4126th
 Pharmaceutical,Soaps and Toileteries                      837,372,212.89                                                783,510,661.16                  1,028,602,964.79                                  1,405,260,616.11                       4,054,746,454.9527th
 Minning                      135,468,847.49                                            182,544,440.05                        209,235,379.41                                    250,955,126.89                            778,203,793.8428th
 Sub-Total (Non-Import) Local VAT               510,650,701,778.00                                       517,611,797,166.49             584,609,102,319.83                           763,011,504,314.99                2,375,883,105,579.3150%
 Sub Total (Non-Import) Foreign VAT               259,697,238,991.58                                   286,295,631,908.06              359,455,169,732.32                        420,434,545,941.57               1,325,882,586,573.5228%
 Sub-Total Import VAT (Nigeria Customs Service)               202,000,466,759.64                                     304,133,137,122.02               240,516,307,311.72                         347,724,759,663.72              1,094,374,670,857.1023%
TOTAL                      972,348,407,529.22                                 1,108,040,566,196.57         1,184,580,579,363.87                       1,531,170,809,920.28               4,796,140,363,009.93 

Source: National Bureau of Statistics

As at today, the September 6, 2021, decision of the FHC in Attorney General for Rivers State v. FIRS & Another is the law. It empowers States with relevant VAT Laws to go collect the Local VAT in their territories. Only Rivers and Lagos States may be able to so do as yet. Until another order of a Court of coordinate jurisdiction as the Federal High Court or more appropriately, the higher Court of Appeal, FIRS will be unable to lawfully collect Local VAT in Rivers and Lagos States while the States will lawfully be able to do so. The VAT administration machineries in the newbies of Rivers and Lagos States are what to watch out for. Interesting times lie ahead as the VAT wars are yet to be over; at least until leadership really wakes up and takes charge. It is often said that governments are known to act decisively and have their way when they choose to. It can accordingly be concluded that given the sustenance of the current imbroglio, the central government of the day has simply chosen not to act. Perhaps the +N2.2trillion VAT that we forecasted was due to be collected and shared among the 3 tiers of Government in 2021 is really nothing to lose sleep over. Perhaps Rivers and Lagos States may, by their performances, prove FIRS’ inefficiencies. Perhaps, we are unto new discoveries.

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