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Key provisions under consideration in the Lagos VAT law

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Key provisions under consideration in the Lagos VAT law

The battle for Value Added Tax between the Federal Inland Revenue Service and Nigerian states took a major turn this week after a bill on the matter passed a second reading in the Lagos State House of Assembly.

Commenting on the collection of VAT, the Speaker of the Lagos House, Mudashiru Obasa revealed that N500 billion is generated from Lagos State while N300 billion is generated from other southwest states, citing that only a portion is sent back to the states.

PwC in a report, has highlighted key recommendations of the Bill which seeks to introduce a law for the imposition and administration of VAT in Lagos State.

The provisions cited in the tax law are:

According to the bill, the Valued Added Tax would be administered by the Lagos State Internal Revenue Service (LIRS), at the rate of 6%

Section 16(2) requires an importer of taxable goods to pay the tax on the goods to the LIRS before clearing the goods (it is not clear how this will be implemented).

Under the State VAT Bill Taxable persons are to register for the tax within 6 months of the commencement of the law or 6 months of commencement of business whichever is earlier. Commencement date is yet to be indicated.

Based on section 9, nonresidents are to register for the tax if they carry on business in the state. There is no provision for self-charging of VAT

Monthly returns and remittance of VAT is due by the 21st of the succeeding month in a manner specified by the LIRS. This means the first return under the law will become due by the 21st of the month after enactment.

The Bill cited that any appeal against the decision of the LIRS regarding the VAT matters goes to the VAT Appeal Tribunal to be established under the new law. Members are to be appointed by the governor on the recommendation of the Attorney-General and Commissioner for Justice.

On revenue sharing formula, the Bill proposes VAT revenue is to be shared 75% to the State and 25% to the Local Governments, citing that there will be no registration exemption for small businesses unlike the N25m exemption under the national VAT Act.

What you should know

A Federal High Court in Port Harcourt ruled that Rivers State should be responsible for receiving Value Added Tax and Personal Income Tax (PIT) in the state, not the Federal Inland Revenue Service.

It can be recalled that while delivering his ruling on August 9, Justice Stephen Dalyop Pam,  issued an order of perpetual injunction restraining FIRS and the Attorney General of the Federation, both first and second defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, personnel income tax and VAT.

The judgment was delivered in a suit filed by the Attorney General of Rivers State against the Federal Inland Revenue Service and the Attorney General of the Federation. However, A Federal High Court sitting in Port Harcourt, Rivers State this week dismissed an application by the Federal Inland Revenue Service (FIRS), seeking to stop the Rivers State Government from collecting Value Added Tax (VAT).

After the court defeat, the FIRS urged taxpayers not to panic over the recent court ruling by the Federal High Court sitting in Port Harcourt on Value Added Tax (VAT), directing taxpayers to continue to honour their tax obligations under the VAT act to the agency.

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