 The Federal Inland Revenue Service was established in 1943 to collect taxes that are accruable to the Federal Republic of Nigeria. But in River State, a court has ruled that it is a government of River State that is enabled to collect taxes accruable to it and not the FIRS. Now, to discuss this and all its implications, we've invited the former president of the Chartered Institute of Taxation of Nigeria, Mr Follusio Fascioto. Good morning. Thank you for joining us. Can you hear me? Yes, I'm hearing you. Okay, no doubt there's been a controversy regarding the FIRS and state government regarding who exactly is supposed to collect taxes. But your capacity in the tax space, what can you tell us about this? Who really should collect taxes? The FIRS, the state government or the federal government? Going by the constitution of Nigeria, current value added tax act of 1993 is unconstitutional. Why? Because VAT or value added tax is neither mentioned in the concurrent legislative list nor in the exclusive legislative list of the constitution. That means that value added tax is a residual item and it can only be legislated upon or act upon by the state. This issue has always been with us in Nigeria, proud to the promotion of the value added tax decree in 1993. That's during the military era. There was this sales tax going on between the states and there were court cases that time and the court ruled that yes, the federal government could collect sales tax. In the states. When the act was promogated in 1993, states waited until we return to the civilian era. And then there was this case between the attorney general of Lagos state and a court tells another, which went up to Supreme Court in 2018. And the Supreme Court ruled that value added tax had power over the sales tax of Lagos state and is only the federal government that could collect VAT from the taxpayers and not Lagos state that could collect sales tax. But in October 2019, that's a year thereafter, the registered trustees of the hotel owners and managers association of Lagos state. They took the attorney general of the federation and others to court and the federal high court at that time nullified VAT. He didn't stop there on the 24th of June 2019. The cost of a paid judgment also upheld the federal high cost decision that value added tax is applicable in Vodacorm versus federal in land revenue service. So you can see that at the time you have a court validating the collection of VAT by the federal government while another one will nullify it. But specifically, an originator someone was brought by one Emmanuel Chukuka Ocula and the versus federal in land revenue service. And the judgment was delivered on the 11th of December last year, nullifying value added tax, which is similar to what we are having now. Then come 9th of August this year, when in the case between reverse state government and the federal in land revenue service as the first defendant as well as attorney general of the federation, court also made similar pronouncement as it was made in December last year that federal government has no business in collecting VAT because it's unconstitutional. But we may now ask the question, why as FRS continue collecting VAT, why are the states not taking it up? Yes, there are issues surrounding that. When the states are very comfortable going to Abuja every month, federal government collecting these taxes on their behalf, and then they are sharing large chunk of this of the proceeds of this value added tax, because federal government is only charging them 15% of the total proceeds. Why the remaining 85% is being shared between the state and the local government? But there are constitutional issues surrounding this. When the value added tax, as I said earlier on, is not listed in both the exclusive list as well as the concurrent list of the constitution. That means that states supposed to be collecting, supposed to impose and collect that tax. So if the federal government is collecting it, then it's unconstitutional. But the states are keeping quiet. Then secondly, the VAT Value Added Tax Act provides the sharing formula that breaches section 162 of the constitution. Value added tax procedure is excluded from the federal account that is said is unconstitutional. Then the sharing formula is contrary to the provisions of section 162 of the constitution. We are just allowing illegality because of the convenience. I've also seen people react to this and say, well, it's not fully binding yet. There's possibility that federal government will still challenge this here and there. But help us understand what this means for states. If every state goes ahead to enforce this ruling, and of course the FIRS leaves Value Added Tax, Personal Income Tax for the states, what does this mean for the states and their economies? The internally generated revenue also and how can they benefit from this? In practical terms, leaving the collection to states will reduce the current total proceeds of VAT because federal government, though illegally, has mastered the art of collection. They have put so many things, so many of the machinery in motion, and they are collecting large chunk. For example, in 2018, 1.108 trillion was collected for VAT. In 2019, 1.19 trillion was collected. In 2020, 1.5 trillion was collected. In the last quarter, based on this gross statistic, 512.23 billion was collected on VAT. If this thing is left to the state, I can assure you that we are going to have the aggregate collection being lowered because of incapacity of some state government. But the question is, should we condone illegality or constitutionality? Is either the constitution is amended to validate the imposition and collection of VAT to include it in the constitution, or the tax machinery in the states is enhanced so that they will have capacity to be able to collect this VAT? I don't think we should condone illegality to continue or constitutionality to continue. I appreciate these two angles that you've put in. Either they adjust that so that the federal government, who have already established a machinery to collect these taxes, go ahead to continue doing so, or for the state government to go ahead and modify their own structures to make sure that they go ahead to collect these taxes. But when we look at LGR and how states should be able to generate revenue for themselves, are things like tax, VAT and PIN not one of the ways that states should be looking to strengthen so that they can generate revenue for themselves? Sure. The problem is that the states, they rely so much on what they are collecting from the federal government. And most states are not developing their revenue generating capacity. That is the problem we are having. But they need to do this if we are to increase the revenue generation in the country. We should not be relying solely on the federal government to do this for us. So what is the fate of states that have very, very poor internally generated revenue? Some of the reactions I've also seen to this say that states are collecting money that has been paid for as value added tax for alcohol sales. These funds are being used to finance states that don't allow people to drink alcohol. So what is the fate then of these states if they stop receiving money from the federal government? How then do they generate internally generated revenue? How do they put that together? Because I'm sure you have an idea of some of these states in certain regions in the country that barely have any internally generated revenue. Research has shown that every state in Nigeria has resources to enhance their revenue generation capacity. But the problem is lack of development of this machinery to do this. So those states, they need to go back to drawing board. They need to employ the services of the experts to develop their revenue generating capacity rather than depending on sharing from federal allocation accounts every month. They need to do this. And until then, we will continue to wallow in penalty. So do you expect other states that have not taken this matter up legally to do so? Well, to start with, there is likelihood that federal income revenue service and the Atoni General of the Federation may appeal this judgment as they have been doing in the past. But whether they appeal is succeed or not is another thing. But in the meantime, I think is an eye opener for states, for other states to follow suit. They should go and enforce the judgment of this court provided there is no state of execution. And even if there is going to be state of execution, they should start looking at ways of developing their revenue generating capacity. Every state in Nigeria has more than enough resources, as I said earlier on, to generate enough resources to cater for their needs. But they are just not doing so. Does this also affect the amount of money that federal government is able to raise to share to states? Well, if this judgment should stand, it will be the states and local government that will lose more, rather than the federal government. Because federal government is only collecting 15% of the total VAT collected. Why the states and the local government are sharing the balance of 85%. But if this judgment should stand, there will be about three, four or five states that will benefit more. Because those people, they have already developed their internal revenue generation capacity and they will be able to earn more. But the remaining states, about 30 or more states will further continue to follow in penery. But don't you think that will force them to develop the mechanism that they need so that they are able to generate their revenue? I mean, why are we not looking at the longer term instead of the fact that for a while they might suffer in trying to collect those taxes? Politicians normally look towards three or four-year projects because at the time they need to stay in the office. So those in government, if they are looking beyond three years, four years, if they are looking at the longer term benefits to the nation, I believe that it is high time the states start developing their internal generating, internally generating revenue capacity. So I remember a few weeks ago, we had a conversation here on the breakfast where you shared your opinion on how the country can go ahead to generate more taxes. Especially from this global tech giants like Twitter that are in Nigeria. You went on to say that Nigeria should be generating more revenue from these global giants that operate here, even if they don't have an office here. But I want to ask you what is the challenge with Nigeria's taxation system? And I ask because in other developed countries you find out that their systems seem to be working. Their roads are working, they have electricity, they have all these social amenities that a citizen should have. But then you find out that the residents are playing their part by paying taxes. But when it comes to Nigeria, taxation is still something we are grappling with. And you can see that the government is also struggling to provide us those services that we need or give us this infrastructure that we need. So what exactly is the challenge with taxation in Nigeria? Is it that citizens are not well informed to understand the role that they have to play in nation building when they pay their taxes and that the government is still lacking in some awareness in what they can use taxes to do for the country? Well, lack of data is a major problem facing taxation in Nigeria. We don't have enough data to plan on. You know the first step in a good tax system is to have proper lists of taxpayers, eligible taxpayers. We suppose to have the data that we lack such data in the country. That is why we need to leverage on ICT. We need to leverage on technology. Let us first of all develop our database so that we have proper data. How much are we generating from manufacturing sector? How much are we generating from the north east? How much are we generating from oil, from non-oil? We need to have this data. Now you have data that you can plan very well. You can be able to identify those people who are supposed to be in the tax net that are outside the tax net. And you'll be able to know where your tax potentials will be. How much tax should a person pay rather than overboddening certain people with taxation? So we need to develop our database. So it's basically a failure of the government to develop a stronger, a more efficient database to increase or widen our tax bracket and include more people in the tax bracket. And that's why I think I would describe them as unskilled labour. As you know that exists in the country that pays zero taxation basically. Yes, but the states that are wide, they are already taxing those people through their union. For example road transport union, mechanic union and so on and so forth. So maybe they charge them flat rates that maybe pay 2005 per annum or whatever no matter how little. Then you can start graduating from year one to year two and so on and so forth. But you need to first of all bring this informal sector to the tax net. You need to have the data. You need to have the details. You need to be able to measure the progression of the tax payment culture. That is what we need in Nigeria. Some people have also mentioned that this is like a mini restructuring. The idea of restructuring that has been mentioned for so many years now. That this is an insight into what it might look like if we truly restructure. Yes, it will help. My only reservation about the issue of restructuring is whether we have the political way. Because no matter how good an idea or system is, if there is no political way on the part of the operators, then it will amounts to nothing. But if we have a proper federation system, then let the states collect the revenue in their environment. Then they can be able to give the federal government a certain percentage of such to take care of the common area, like security, safety and so on and so forth. But let there be political will at grass-root level, at local government level, at state level. Let there be political will. Because we are only paying late service to this issue of restructuring. Because when you go to some state, you will even be surprised at what is happening there. For example, you will have local government election and the system with the election will be so badly arranged. Yet we are asking for restructuring when the states are yet to actually develop their own structure properly. That's the problem. An overview of Nigeria's taxation, what would you say our system of taxation is and what should it be, progressive or what would you say? It's actually on upward strength. The reason being that when you look back 10 years, 15 years, 20 years ago, the situation was very, very bad. You are not even having any system in place. But between the last 20 years, things have started looking up. We are developing our tax system only that is too gradual for comfort. For example, in South Africa, the total amount generated from personal income tax alone is more than the total budget of this country. So why should we just be at peace with poverty? We shouldn't be at peace with poverty. We should actually aggressively confront our revenue generation challenges. The tax system we should adopt technology. We should develop our database. We should have political will at the grassroots. There are so many states today that don't have properly constituted internal revenue service boards. We should be able to develop the system. We should let the experts handle our tax system. Then things will look better. I want to go back to how states would react and get your thoughts on if there's a possibility, if you think it's necessary, that this becomes a nationwide ruling. Are states allowed to argue against this and say we would rather let the government continue while other states say we would go with what the ruling is saying? Well, as I said earlier on, this is my own personal opinion. I know that the states, despite the fact that they know that this judgment is right, may not want to go with the judgment. Because they are going to lose majority of the states, they are going to lose large chunk of their revenue. Because as I said, they share the larger chunk of the revenue of the VAT process. So they would rather allow the sleeping dog to lie. They would want to support the federal online revenue and the Tony General Federation to succeed in their appeal against this judgment. But we cannot continue forever in carrying out constitutional procedures. Interesting. Earlier I want to ask you about Niger's tax system. I was actually talking about the progressive, the proportional and regressive tax systems. And what you think is in practice in Nigeria and what it should be? Progressive. Progressive? Yes, what we are practicing is progressive. Because if you are any more, you pay more. If you are any less, you pay less. That's what we are practicing. But is still not all that fine-tuned. We should be able to copy from developed countries. But we need data. It's a problem. We need data. We see we don't have enough data. For example, in some climes, you should be able to predict your level of taxation in a year in advance. You should know the maximum amount of tax you will pay on your specified income. But in Nigeria, we don't have such information. We don't have such data. The more you review yourself to tax authority, the more taxes you pay. They may even charge you taxes that are illegal. So those are the issues. So the government needs to pay proper attention to our tax system in the country. If we were able to fix these issues that you've mentioned, do you think our tax figures would be revenue generated from taxation? We're talking 1.7, 1.6, 1.5 trillion Naira. What do you expect that it should be like if we were able to fix the structure with regard to taxation, include more people in the tax bracket, and do what was right? I believe that except for business wisdom that requires you to borrow when you are doing a business. Otherwise, our total internally generated revenue will be more than enough to cater for our needs in the country if we are able to fix our tax system. But with the current situation, there is no way we can be up to that level. Because we are collecting less than 80% of what we're supposed to be generating in the country. So if we are able to fix, we should be talking in the region of 3 trillion as it is right now, as against the 1.7 trillion that we are generating. And that should be able to fix all our budgetary needs in the country. I want you to also speak on the challenge of sincerity of purpose. If the government, or one of the challenges I believe Nigerians have always had with taxation, in the country is the fact that they don't see the benefits of taxation. How do you think that also must be fixed? That's why I talked about applying technology. If there is technology, we should be able to know how much we are generating. Citizens should be able to go to the database. They should be able to access the information freely. And they should be able to know how much we are generating. So if the road leading to my place is not fixed, I should be able to query the local government authority in charge of that road. Or if it is state, I should be able to query them. Then there are certain left-sided issues. Why should you ask the government to start fixing the road from Sokoto to Kebyn? When the federal government seat is in Abuja, they don't even know what is happening there. So they are less concerned whether the road is fixed or not. But if you empower Sokoto State or Kebyn State to generate the revenue within its domain, they will be able to have enough money to be able to fix such road. And citizens will be happier for it. So at the end of the day, we need more orientation for the government and for the people so that we are all aware of the benefits of taxation and are able to pull our resources together to grow and develop our country. That's it, right, Mr Fasioto? Orientation and political will. Political will on the part of the government, then orientation on the part of the taxpayers. Fantastic. Mr Fulusio Fasioto, former president of the Chatted Institute of Taxation Nigeria, joining us from Abuja, and we'll thank you very much for your time this morning. It's my pleasure. Have a great day. All right. We'll take a short break when we come back. We're moving to talk health-related issues now. The National Association of Resident Doctors and their ongoing strike, the little details here and there that you may need to know. And of course reactions to the River State chapter pulling out of the strike. We'll get into that after the short break here on the breakfast.