On 9 August 2021, the Federal High Court, Port Harcourt division, issued a very controversial ruling on Value Added Tax (VAT). In a case of the Attorney General of Rivers State vs Federal Inland Revenue Service (FIRS) and Attorney General of the Federation (Suit no. FHC/PH/CS/149/2020), the Court declared the VAT Act unconstitutional and transferred the power to collect VAT in Rivers State from the FIRS to Rivers State.
The FIRS has since appealed this ruling at a higher court, while insisting that taxpayers in Rivers State should continue to pay VAT to the FIRS.
In the meantime, Rivers State has, on 19 August 2021, signed into law, the Rivers State Value Added Tax Act which provides for the imposition and administration of VAT in Rivers State. The Rivers State VAT law imposes VAT at 7.5% on the supply of taxable goods and services except those exempted under the schedule to the Law.
The Rivers State Internal Revenue Service (RSIRS) is empowered by the law to administer, implement, assess, collect and account for money collected.
Other important provisions of the Rivers State VAT Act includes:
- A taxable person under the law is required to register with the Board within 6 months of the commencement of the Law or 6 months of commencement of business, whichever is earlier.
- Registration for VAT under the law is a condition for obtaining a contract from a government ministry, agency or statutory body.
- A non-resident company that carries on business within the State is to register for the tax with the Board, using the address of the person with whom it has a subsisting contract. The non-resident company is to include the tax in its invoice while remittance is to be made by the person to whom the goods or services are supplied in the State, in the currency of the transaction.
- Refusal to register for the tax within the time specified is a punishable offence.
- The law mandates payment of the tax on taxable imported goods before they are cleared.
- Where a person disagrees with the amount assessed, he may object to the RSIRS.
- Tax is to be remitted on or before the 21st day of the following month.
- There is no exemption for small and medium enterprises with turnover of less than N25 million.
- The State government shall receive 70% of the revenues from the tax, while 30% would go to the local governments.
- The Schedule to the law exempts the following goods and services from VAT:
i. All medical and pharmaceutical products
ii. Basic food items
iii. Books and educational materials
iv. Baby products
v. Fertilizers, locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment.
vi. All exports
vii. Plant, machinery and equipment purchased for the utilisation of gas in the downstream petroleum operations.
viii. Tractors, ploughs and agricultural equipment and implements purchased for agricultural purposes.
ix. Medical services.
x. Services rendered by the community banks, Microfinance banks and mortgage institutions.
xi. Plays and performances conducted by educational institutions as part of learning.
xii. All exported services.
As of 20 August 2021, Rivers State government had, further to issuing the new VAT law, begun issuing official demand letters to businesses operating in Rivers State, demanding that they remit all VAT due, for August 2021, to the designated Rivers State VAT collection account.
As it is, taxpayers in Rivers State are caught in dilemma between the two Regulators. No one knows for sure the ultimate verdict until the case is ruled by the Supreme Court. In the meantime, failure to file / remit VAT returns to any of the two authorities may result in two-fold accrual of penalties and interest for Rivers State taxpayers, since the Federal VAT law is still effective and has not been cancelled or revoked by any legislative action.
Affected taxpayers may find that a very strategic way to mitigate VAT risks in this controversial circumstance may be to commence filing NIL tax returns to both tax authorities until the issue is resolved by the Supreme Court or by the Federal Law makers.