Nigeria’s retrogressive fiscal “unitarism” is undergoing a catalytic judicial scrutiny. Justice Stephen Pam of the Federal High Court in Port Harcourt, on the urging of Rivers state governor, Nyesom Wike, set the system teetering on the brink with a landmark ruling empowering states to collect value added tax (VAT).
The Court of Appeal has ordered a stay of execution of Justice Pam’s ruling, while it examines the constitutionality of his crucial decision. The matter is already in the Supreme Court. By the time Justice Pam’s ruling straddles its way through the nation’s judicial ladder, and that ruling is upheld, the foundation for the restoration of fiscal federalism would have been inadvertently laid.
That landmark ruling by a courageous judge would reduce the dwindling federal revenue by something close to N2 trillion annually.
The issue before the judiciary is the constitutionality of state collection of VAT. When that is settled, the moral issue of what happens to states where residents consume goods and services on which VAT is levied without producing them, would inevitably be decided at a negotiating table.
This columnist does not see any logic in the “brothers’ keepers” plea made by Gombe state governor. The residents of Gombe and other states consume goods and services produced in Rivers and Lagos states where VAT is deducted for the ease of collection.
Since VAT is a consumption tax ironically collected in Nigeria as production tax, simple economic logic demands that the states hosting the firms producing the goods and services on which the tax is levied cannot take all its proceeds.
The consuming states deserve a percentage of the proceeds of VAT for providing the facilities that enable its residents to consume what the tax is levied on. Otherwise, VAT would illegally become a production tax.
Consequently, consuming states have the right to demand a percentage of VAT. The production states are not playing any “brothers keepers” role to the consuming states under that circumstance. They are just giving them their rights.
While the egg heads in Nigeria’s judiciary ponder over the constitutionality of state collection of VAT, politicians and technocrats should start fashioning out fresh sharing formula for VAT.
The new formula would give the states hosting the production companies a bigger share of the proceeds while the states where the goods and services on which VAT is levied are consumed, are not deprived of the proceeds of the indirect tax.A realignment of the sharing formula in the direction of what happens to the proceeds of crude oil would reduce the injustice visited on production states while still giving the consuming states something they rightly deserve..
A new sharing formula should set aside a percentage of the proceeds of VAT as derivation for states hosting the companies that produce the goods and services on which the tax is levied. What is left should be shared on the existing formula.Anything short of that would border on a winner-takes-all cataclysm that could touch off a trade war with the consuming states boycotting goods and services on which their residents pay consumption tax but could not enjoy proceeds of the tax. The “brothers’ keepers” appeal of Gombe state makes the consuming states look like beggars, which they are not. However, if the judicial pendulum on VAT swings to the side of state collection, the scene would have been set for states to rejig their internally generated revenue as the decision on VAT could trigger a paradigm shift from fiscal “unitarism”…
The governor of Gombe state lamented that without VAT, the state cannot pay salaries. That is the situation with most of the states of the federation. They cannot pay salaries without stipends from Abuja. Fifty-five years of fiscal “unitarism” has inculcated a nauseating sense of complacency that blinded state governments from seeing the immeasurable resources sitting idle in their domains…
Gombe state governor’s complaint borders on disgusting mental laziness. The state sits on thousands of kilometers of arable land and yet millions of its resident wallow in abject poverty while politicians and top civil servants cruise around in luxury sports utility vehicles (SUVs) purchased with scarce public funds. ..
The lifestyle of government officials in the state does not suggests that the state cannot pay salaries from its internally generated revenue which it just toiled to raise to a paltry N800 million per month.Gombe and other states in its mold should learn a lesson from Cross River state. Two weeks ago Ben Ayade, the state governor commissioned a modern rice mill with capacity for processing 10 tons of rice per day. For decades, indigenes of northern Cross River toiled to cultivate rice under deplorable conditions in swamps and process it manually through backbreaking procedures. Consequently, the output was often rebuffed by consumers who preferred well processed imported rice devoid of stones…
Now with a modern rice mill in Ogoja, the peasant rice farmers can compete favourably and drive imported rice out of their markets. That would improve farmers’ earnings and consequently reduce poverty. If the state government backs up its investment in the modern rice mill with the establishment of a large mechanized rice farm, Cross River state would not only create thousands of jobs but would reduce Nigeria’s reprehensible dependence on imported rice. Besides, employees of the mill would pay tax to the state government and boost its internally generated revenue…
The land mass of Lagos state is less than that of one local government in Gombe state. Yet Lagos state government has built a giant rice processing mill for its ambitious rice production scheme..That is what Gombe state government and its likes should do rather than begging productive states to be their brothers’ keepers.The brothers’ keepers’ mentality is a beggarly mien grounded on obtuse lethargy that makes the groundnut pyramids of the 1960s look like the products of rocket science. Rulers of the old north that produced the groundnut pyramids were not from the planet mars. They were Nigerians who worked hard to set a high standard of living for their people rather than begging for impertinent stipends…
Gombe has no reason to complain about internally generated revenue. It should invest in agriculture and lift its indigenes from poverty through massive food production.The state of Israel sits on horrendous desert. Yet it feeds all the nations around it with food from irrigation technology which Israel developed some 3, 000 years ago in Egypt.Irrigation technology is everywhere in the world. It is cheaper than poverty. Gombe should invest in it.
