In our last article, we discussed the taxing powers of the Federal Government of Nigeria. We also defined taxation to mean the various methods and ways by which a government or the taxing authority imposes or levies a tax on its citizens and business entities. We also examined the evolution of taxing powers in Nigeria.
In this article, we will explore the taxing powers of the state and local government.
TAXING POWERS OF THE STATE GOVERNMENT:
The state government shares certain powers with the Federal government. These are provided for under the concurrent legislative list. However, issues such as Federal government inefficiency and disparities in the Constitution on State Authority, have sparked debate on the need to delegate certain powers to the State alone. ’68 items on the exclusive legislative list are numerous and the list contains matters which the state governments can legislate on independently. Also, the Federal government still has an overriding power over the state governments under the concurrent legislative list’.[1] For example, the ‘omission’ of Value Added Tax (VAT), has caused problems in recent times on what tier of government should be responsible for the collation of VAT for the country. In fact, ‘recently, Rivers State Government won by a High Court judgment the right to collect VAT in its state in the Nigerian federation’.[2] Other states have followed suit, based on the fact that there is no constitutional provision for Federal collection of VAT-meaning that such power belongs to the State.
It is evident that whilst the concurrent list was enacted to promote harmony and possible checks and balances between the Federal and state government, the discrepancies in taxing powers call for a restructuring of the legislative list in its entirety. Just as the Federal government administers taxation through the Federal Inland Revenue Service (FIRS), the state governments also have their respective State Internal Revenue Service (SIRS) to administer taxes at their own level. The SIRS remits taxes collectible by the state to the State Board of Internal Revenue (SBIR). With regards to the specific taxing powers of the state, it should be noted that ‘under the 1999 Constitution of Nigeria (as amended), no tax is specifically reserved for the State Government’.[3] Item 9 of the Concurrent Legislative List only infers that:
A State Legislature may: (i) by law, prescribe conditions under which its own tax authorities may charge and collect any tax, fee or rate (other than those that had been expressly reserved for the Federal Government under the Exclusive Legislative List; (ii) delegate to Local Government Councils the collection of any such tax, fee or rate upon conditions prescribed by the State Legislature.[4] This provision enables the state governments to delegate their taxation powers to the local government in a way that would prevent double taxation.
Thus, whilst state governments have the authority to make taxing laws in certain instances, this power is quite restrictive as there is no express provision for taxes they are allowed to charge and collect. In addition to the provision of the concurrent legislative list, Item D7 states that ‘the National Assembly may authorize states to administer the law imposing tax on Capital Gains, stamp duties, income and profits of persons other than companies. More specifically, this means that the taxing powers of the state governments include:
- Capital Gains Tax on individuals only.
- Stamp Duties on instruments executed by individuals.
- Withholding Tax of only Individuals.
- Pools Betting and Lotteries, Gaming and Casino Taxes.
- Personal Income Tax.
- Pay-As-You-Earn (PAYE); and
- Direct Assessment[5].
‘In practice, the Federal government and state governments are usually at loggerheads as to who can tax what. The most prevalent areas include; Stamp Duties, VAT vs Sales Tax, Capital Gains Tax, Petroleum Profits Tax and so on’.[6] Although the Constitution made attempts to allow the taxing powers of the authorities, it is still imperative that these provisions be reviewed so as to resolve all identifiable discrepancies and broaden the horizon of the taxing powers of state governments.
