It was a gleeful Guardian that reported Gombe State governor’s poorly thought-out comment on the judgement of the Federal High Court, Port Harcourt on the VAT controversy. Governor Yahaya and his Commissioner for Finance were agonising over the negative impact of the judgement on the state’s finances and – of all things – appealing to the winning side, their unrelenting traducers, to be their brothers’ keepers. Katsina state governor Aminu Masari’s response was more like it, for him the battle through the courts has just been joined. To those Nigerians to whom Law is Greek, the judgement is more legalese than common sense. If it survives the scrutiny of the courts above, the judgement will have thrust another spike into the heart of the country’s federalism already ravaged by the hostile attitudes of fractious politicians and irredentists. And Nigerians would then have the right to exclaim “Et tu judicium!”
Value Added Tax (VAT) is a tax on consumption not production. Introduced by the Value Added Tax Decree of 1993, now an Act of the National Assembly, it replaced the different sales tax regimes in force across states, making for easier administration. Efficient tax collection systems in Europe and America makes VAT collection from the ultimate consumer at the point of purchase possible. That is not so with our rudimentary tax collection system and chaotic retail trade chain. The Federal Inland Revenue Service therefore co-opted manufacturers into collecting VAT on its behalf, from the factory gates so to speak, with the tax already incorporated into the prices charged distributors, et al. A sensible arrangement if ever there was one.
The VAT allocation formula currently in use is just about right: no state, not even Lagos, consumes 20% of the goods produced in its domain. Not being cast in stone however, it’s subject to review rather than abandonment.
It is disingenuous to assert state “generation” of VAT. The bulk of manufactured goods in any state get shipped to other parts of the country. Have we had an efficient collection system, VAT on a bottle of Coca-Cola bought in Yenagoa or Kaura Namoda would have been paid at the respective points of purchase.
However, VAT on services provided by the likes of hotels and restaurants should properly belong to states, these being in-state transactions.
It is entirely false to view the Port Harcourt judgement as a step in the direction of “fiscal federalism”. Nigeria, by virtue of its being a federation has been practising fiscal federalism. American economist Robert Musgrave introduced the term to identify “financial relations between units of government in a federal system of government”. Further, it “deals with the division of governmental functions and financial relations among levels of government.” The Federation Account and its predecessor, the Distributable Pool Account are evidence that “financial relations among levels of government” have been codified since Independence.
The United States and India each practice fiscal federalism, albeit one forged by their respective histories: like federalism itself, there is no international benchmark for measuring its suitability for each country.
“Feeding bottle federalism” may sound witty but it is in fact corny and a false representation of the situation. In every federation the central government transfers revenues to component units according to its laws. Nigeria is in good company in this regard.
The Guardian completed its lurch to bigotry and extremism with the launch of the “Federalism is the answer, after all” series of editorials. Evidence of this was in the paper’s take on the invasion of the Nigerian Defence Academy campus in Kaduna and the murder of two officers and the kidnap of one other (Series 45).
The Guardian attributed it to the activities of “fifth columnists” and the fact, in its own words, that “a military formation is thrown on Fridays to Muslim faithful for prayers in ways that compromise the security of the defence institution.” Nigerians know that Christian faithful across the country troop to churches in military formations in their neighbourhoods for Sunday worship. Doddan Barracks itself was the venue for such interactions even when it was the official residence of Presidents/ Heads of State.
Thus at every turn, on any issue it retails what an elder statesman called “the notion that the interests of our various peoples are incompatible and forever in conflict.” In the toxic atmosphere created by the balance-of-terror pronouncements, now from both sides, the claim of “a broad consensus in the country in favour of a reformed, revitalised and truly decentralised and democratised federal system” is an exaggeration.
Usman writes from Kaduna
