REVISITING SECTION 40 OF THE VALUE ADDED TAX ACT: LEGAL THEORIES FOR AMENDING AND EXPUNGING SPECIAL ACCOUNT ADMINISTERED BY FEDERATION ACCOUNT ALLOCATION COMMITTEE

Abstract

This paper proposes legal theories and strategies for amending and/or abolishing the Special Account presently being administered by the Federation Account Allocation Committee (FAAC) under Section 40 of the Value Added Tax (VAT) Act. The solution to the VAT issue is simple. Statesourced VAT revenue belongs to the States. However allocation of federal sourced VAT revenue should be shared on the basis of derivation principle similar to the provision under Section 163 of the Constitution of the Federal Republic of Nigeria (1999) which governs proceeds accruing from stamp duties and capital gains tax. In addition, all VAT
revenue collected by the Nigerian Customs Service (NCS) on account of imports and exports should be paid into the Federation Account to be shared by all the federating units. The fiction that all countries operating federal consumption tax regime have adopted the VAT format is inaccurate. Both the United States of America and India use sub-national Sales Tax regimes as opposed to a federal VAT. However, such a law by the National Assembly would require an amendment to the 1999 Constitution. The paper also argues for increasing the powers of sub-national (State) governments to administer and collect revenue accruing from consumption taxes in Nigeria. In most federal constitutions, sub-national States usually have legal control over consumption taxes over and above the federal national governments. This paper proposes that the individual Nigerian sub-national States should possess an independent and uncontrollable authority to raise their revenues to support their own wants. In effect, with the sole exception of duties on imports and exports, the individual Nigerian sub-national States should retain taxing powers and authority over consumption taxes in the most absolute and unqualified sense; and any attempt on the part of the federal government to abridge them in the exercise of such powers, would be a violent assumption of power unwarranted by any article or clause of the Constitution. In conclusion, the paper recommends that Section 40 of the VAT Act be amended and/or expunged to meet the Consolidated Revenue Fund Account requirements under Sections 80 and 81 and other relevant provisions of the Constitution of the Federal Republic of Nigeria of 1999.