Shortly after Governor Nyesom Wike of Rivers signed a bill into law granting the state complete autonomy over Value Added Tax (VAT) collection, it appears the Federal Government may have kicked back on this action by excluding the state from beneficiaries of its new planned loan. This comes after the FIRS lost a legal battle with the Governor, over the right to collect VAT in the state in the Federal High Court of Port Harcourt. However, the suit has been taken to the Supreme Court at Abuja for final adjudication.
The problem arose when Governor Wike compared the money generated by Rivers state to what it gets back by way of allocation. According to a report by the Vanguard Newspaper, his state generated over 90 billion Naira between January to August, while receiving only about 46 billion in return. That amounts to roughly half of the total revenue, causing the Governor to feel cheated. On the other hand, a northern state like Zamfara generated only about 598 million, but got an allocation of 35 billion.
In the midst of all this, the Federal Government has a plan in place to borrow funds from the World Bank, aimed at executing projects within the country. To this end, a list was released of states that are eligible to benefit from it. Curiously, of all the 36 states, Rivers alone was missing. This prompted Governor Wike to speak out against the omission, reasoning that there is a connection between the move by the Federal Government and his decision to collect VAT.
However, Governor Wike resolved that the Federal Government can do as it pleases with the loan, saying that he would still retain his resolve to collect VAT in his state. Although Lagos State was not included in the omission, could this be a form of punishment by the Federal Government for the stubbornness of Governor Wike? If this is the case, it stands to reason that it is meant to serve as a warning to other states that may seek to follow in his footsteps.
This notion holds water when you consider the fact that the southern states have decried the perceived disproportionate allocation of VAT with the north. For instance, in the period under review (January to August), the 18 Northern states, with the exception of the FCT, have been given a cumulative sum of about 478.768 billion against a 100.579 billion VAT generation.
On the other hand, southern states combined generated about 681.504 billion by way of VAT revenue, but received about 528.995 in allocation. Clearly, they make up the bulk of Value Added Tax income, but end up with significantly less. Should they all decide to follow in the steps of Lagos and Rivers state, the share that goes to the north will be adversely affected.
It is for this reason that the exclusion of Rivers state from states to benefit from the upcoming FG loan may be a warning for others, in a bid to discourage them from collecting VAT. It could be based on the premise that, if they are to reap the full benefits of their tax revenues, they might as well forget about getting loans from the central government.
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