Optical Dot Gain

185 to be arbitrary.¹¹ In the course of this work, I shall look at the impact of these taxes on trade and investment in Nigeria. However, it is important to look at fiscal federalism under the constitution and the taxing powers of state governments. This is becausethe fiscal federalism structure as provided in the Constitution¹² is to a great extent responsible for the abuse of taxing powers by States.

186 existence and independence of the control of any other government.

Each government exists, not as an appendage of another government (e.g. the federal or central government) but as an autonomous entity in the sense of being able to exercise its own will, on the conduct of its affairs free from direction by any government. Thus the central government on the one hand and the State governments on the other hand, are autonomous in their respective spheres.¹⁵

Similarly,Nwabueze defined federalism as:

… an arrangement whereby powers of government within a country are shared between a national, country-wide government and a number of regionalized (i.e. territorially localized) government in such a way that each exist as a government separately and independently from the others operating directly on persons and property within its territorial area, with a will of its own and its apparatus for the conduct of its affairs, and with an authority in some matters exclusive of all the others. Federalism is thus, essentially an arrangement between governments, a constitutional device by which powers within a country are shared between two tiers of government, rather than among geographical entities comprising different people.¹⁶

From the above definitions, the main features of federalism are the existence of two independent tiers of government, and the distribution of powers between them. Thus, federalism

15 Culled from E Ihedioha ‗Legislative Issues in Fiscal Federalism in Nigeria‘ a Paper delivered at the Second Anniversary Lecture of the Fifth Assembly of the Delta State House of Assembly, Asaba on 14^th June, 2013, p. 3.

16 BO Nwabueze, ‗Federalism in Nigeria under the Presidential Constitution (Lagos: Lagos State Ministry of Justice, 2003) p. 1.

187 can be defined as an arrangement in a country where governmental powers are shared between two independent tiers of government. Local Governments are not a tier of government; they are a system under the control of state Governments. In Nigeria Local Governments don‘t have legislative powers under the Constitution; the powers of the Federation are shared between the Federal Government and State Governments,¹⁷ while Local Government administration was structured as an appendage of the State Governments under the Constitution.¹⁸ However, it is recognized as a level of government for the purpose of resource allocation. There is need to strengthen Local Governments by giving them some Legislative Powers, one quick way to do this is to amend the Constitution to give Local Governments the powers to legislate on all the items under the fourth schedule to the Constitution.

Fiscal federalism on the other hand has been defined as follows:

Fiscal federalism means the application of the federal principle in resource mobilization and allocation within and among the constituent units in a federation. In other words fiscal federalism is the division of powers, functions, duties, and financial resources among different levels or tiers of government.¹⁹

The principles of fiscal federalism are concerned with how taxing, revenue generation, spending and regulatory functions are distributed among the federating units and how intergovernmental transfers are structured among the units.²⁰ The researcher therefore defines fiscal federalismas the distribution of the powers to regulate the finance and revenue of a country among the tiers of government.

17Section 4-6 of the Constitution (as amended), op cit.

18Ibid, section 7.

19E Ihedioha, op cit, p. 4.

20 IO Okauro (ed) A Comprehensive Tax History of Nigeria (Abuja: FIRS, 2012) p. 1.

188 The National Tax Policy document encourages States to direct their tax policy towards ensuring that the tax system reflects the principle of fiscal federalism.²¹ In this regard, it is intended that the Nigerian Tax Policy would therefore uphold the application of fiscal federalism in the generation and expenditure of revenue by Government at all level in accordance with the tenets of the Nigerian Constitution.²² The expectation of the National Tax Policy is that there should be a workable and acceptable platform which should be adopted by all tiers of Government for the proper application of the doctrine of fiscal federalism in relation to taxation.²³ In this regard, the role of fiscal federalism is capturedin the National Tax Policy document as follows:

It is expected that the tax policy and other tax legislation, would resolve the issue of who collects what, how it is collected, who controls what is collected, how what is collected is shared, who is responsible for spending what is collected and who is ultimately responsible and accountable to the tax payers for the revenue collected and its expenditure.…it is believed that adherence to these principles would bring an end to disputes on the limits and powers of the tiers of Government in our federation on fiscal matters. It will also bring clarity and certainty to tax administration in the entire Nigerian tax system.²⁴

21Appendix 3 of the National Tax Policy.

22 Role of Fiscal Federalism, paragraph 1.6 National Tax Policy.

23Ibid.

24Ibid.

189 This position is quite laudable, but unattainable in view of the constitutional provisions on fiscal federalism in Nigeria. It is only the Constitution²⁵ that can properly resolve the issue of who collects what, how it is collected, who controls what is collected, how what is collected is shared; a policy document cannot do that. As earlier established, the Constitution²⁶gives overriding powers to the Federal Government on taxation matters. The drafters of the constitution did not seem to appreciate the import of federalism. Hence, in making provisions for fiscal matters, the principles of fiscal federalism were ignored to a great extent. An examination of the legislative powers of the National Assembly will clearly reveal that there is no fiscal federalism in Nigeria especially in relation to issues of taxation.

The National Assembly has powers to legislate on any matter in the Exclusive Legislative List.²⁷ The under listed items in the exclusive list relates to fiscal matters.

Item 6. Banks, banking, Bills of Exchange and promissory note.

Item 5 Bankrupcy and Insolvency.

Item 7 Borrowing of Moneys within or outside Nigeria for the purposes of the federation or of any State.

Item 15 Currency, Coinage and Legal Tender.

Item 16 Custom and Excise duties Item 24 Exchange Control

Item 39 Mines and Minerals, including oil fields, oil mining, geological surveys and natural gas.

Item 50 Public debt of the federation Item 58 Stamp duties

25op cit.

26op cit.

27 Part I of the Second Schedule to the Constitution, op cit, by virtue of section 4(2) of the constitution.

190 Item 59 Taxation of income, profits and capital gains, except as otherwise prescribed by this constitution.

Item 62 Trade and commerce.

Item 68 any matter incidental or supplementary to any matter mentioned elsewhere in this list.

Also, the National Assembly has powers to legislate on any matter, it is specifically empowered to legislate upon under the provisions of the Constitution,²⁸and any item in the Concurrent Legislative List²⁹ to the extent prescribed in the Second Column opposite thereto.³⁰In addition to the foregoingsection 44(3) of the Constitution provides as follows:

Notwithstanding the foregoing provisions of this section, the entire property in and control of all minerals, mineral oils and natural gas in, under or upon any land in Nigeria or in, under or upon the territorial waters and the exclusive economic zone of Nigeria, shall vest in the government of the federation and shall be managed in such manner as may be prescribed by the National Assembly.³¹

The State Houses of Assembly are only competent to legislate on residual matters,³² items in the Concurrent Legislative List to the extent prescribed in the Second Column opposite thereto,³³ subject to the doctrine of covering the field³⁴ and the enactment of laws for Local Government administration.³⁵

28op cit., section 4(4) ( b).

29Ibid, Part II of the Second Schedule to the Constitution, op cit.

30Ibid, section 4(4) ( a).

31op cit.

32Ibid, section 4(7) (a).

33Ibid, section 4(7) (b).

34Ibid, section 4(5).

35Ibid, section 7 and the Fourth Schedule .

191 Against the backdrop of the distribution of powers under the 1999 constitution,³⁶ one can safely come to the irresistible conclusion that the constitution is not a federal constitution.

Nwabueze has identified some fundamental characteristics of a federal system of government they are:

(1) The power arrangement should not place such a preponderance of power in the hands of either the national or regional government to make it so powerful that it is able to bend the will of the others to its own.Federalism presupposes that the national and regional government should stand toeach other in a relation of meaningful independence resting upon a balanceddivision of powers and resources. Each must have powers and resources sufficient to support the structure of a functioning government able to stand on its own

against the other.

(2) From the separate and autonomous existence of each government and the plenary character of its powers within the sphere assigned to it, by the constitution, flows the doctrine that the exercise of these powers is not to be impeded, obstructed or otherwise interfered with by the other government, acting within its own powers.³⁷

The provisions of the 1999 Constitution,³⁸ which is substantially the same with the 1979 Constitution of the Federal Republic of Nigeria, on fiscal matters is far from these characteristics, making it is like a unitary constitution. There is over concentration of fiscal powers on the federal government. In a bid to introduce a semblance of federalism; the constitution has introduced what has been described as feeding bottle federalism,³⁹ where federating units go to Abuja at the end of the month to share money.

36Op cit

37 BO Nwabueze, op cit, pp. 20-21.

38Op cit

39 I Ekweremadu, ‗Keynote Address at the Second Anniversary Lecture of the Fifth Assembly of the Delta State

192 The provisions of section 162, 163, 164 of the Constitution⁴⁰ provides to the effect that any amount standing to the credit of the federation account or the net proceeds from tax and duties, shall be distributed among the States on the basis of derivation. According to Ekweremadu:

Those early days of real fiscal federalism built on the philosophy of ‗no food for lazy man region‘ witnessed massive development across the regions. Each constituent part worked hard to harness and wisely spends its resources to meet its needs and goals. The regions sort to outdo one another in human capital, infrastructural and industrial development, serviced, not with oil money, but by proceeds from palm produce in the East, Cocoa and Rubber in the West and groundnut in the North.⁴¹

This was the position before the oil boom. Under the 1963 Republican constitution, all minerals, both solid and oil found in the continental shelf of a region belonged exclusively to that region. The Federal Government was mandated to pay 50% of the royalties received by the federation in respect of the minerals extracted in that region to the regions.⁴² With the discovery of crude oil, events took a new turn. During the oil boom of the late sixties and seventies, the right of the regions over their resources was abrogated by Offshore Revenue Decree No. 9 of 1971. This was reflected in all subsequent constitutions. In the 1979 constitution, it was section 40(3) while in the 1999 Constitution⁴³ it is section 44(3).

Over the years, there has been an entrenchment of this kind of federalism, where power is over concentrated at the federal level. Ekweremadu decrying this ugly trend stated as follows:

House of Assembly, Asaba on June 14, 2013, p. 2.

40Op cit.

41Ibid.

42Section 140 of the 1963 Constitution of the Federal Republic of Nigeria.

193 A federating arrangement where the federating units converge at the

federal capital every month like spoilt adults to be bottle fed with free money without thinking of how to make their own money is what I have described as feeding bottle federalism. And typical of free money, this culture has had a lottery effect on the nation. It is like a poor man who wakes up on top of billions of lottery cash. His sense of productivity, priorities, and frugality disappears…This culture of free money has also affected our national attitudes to taxation as a catalyst for socio-economic development.⁴⁴

Nigeria is a mono product, oil dependent economy. However, with the volatility in the oil market, State governments have seen the need to diversify their economy.⁴⁵ Thus, the need to increase internally generated revenue is more urgent than ever before. Taxation has been recognized as a veritable tool by State Governments to boost internally generated revenue.

However, the provisions of the Constitution on fiscal matters, as earlier discussed, limits thepowers of the State Government‘s to impose and collect taxes.

Unfortunately, the Federal Government in reaction to the observation that taxing powers are over concentrated at the federal level amended the Taxes and Levies (Approved List for Collection) Act,⁷⁸³ in 2015 by an order of the Minister of Finance⁷⁸⁴ to include most of the arbitrary taxes by State Governments. Part 11 of the Act which is on taxes collectable by State Governments was amended to include the following taxes: Business Premises Registration Fees

43Op cit.

44I Ekweremadu, loc cit.

45 KA Muhammed ‗Delta ‗State Beyond Oil; Taxation As a Catalyst for Socio-Economic Development‘ A paper presented at the Second Anniversary Lecture of the Fifth Assembly of the Delta State House of Assembly, on June 14^th, 2013, pp. 4-6.

783 Cap T2 LFN, 2004.

784 Taxes and Levies (Approved List for Collection) (Act Amendment ) Order, 2015.

194 of Urban and Rural areas of each State renewable annually, Land Use Charge, Hotel, Restaurant or Event Centre Consumption tax, Entertainment tax, Environmental Tax, Mining, Milling and Quarrying Fee, Animal trade Tax, Produce Sales Tax, Slaughter or Abattoir Fees, Infrastructural Maintenance Charge or Levy, Fire Service Charge, Property Tax, Economic Development Levy, Social Services Contribution Levy, where applicable and Signage and Mobile Advertisement jointly collected by State and Local Governments. Also, Part 111, which is on taxes collected by Local Governments, was amended to include Wharf Landing Charge.⁷⁸⁵

This Act seeks to expand the no of taxes the States can collect,although, it is arguable that an Act of the National Assembly cannot determine the taxing powers of States and Local Governments. Clearly this amendment seeks to institutionalise double and multiple taxation in Nigeria, a development that is not good for the development of trade and investment in Nigeria.

Thus, at this point in Nigeria it is obvious that the Taxes and Levies (Approved List for Collection) Act,⁷⁸⁶seems to be compounding the challenges of taxation and ought to be repealed.

The multiple taxes imposed by State Governments raise little revenue, cause huge inconveniences and pose serious obstacles to private sector investment.⁴⁶Popoola decried this detestable trend in the following way:

Judging from the experience in the recent past on tax administration in Nigeria, especially as it relates to the State tax authorities, there had been regimes of arbitrary and unilateral imposition of excessive and duplicated taxes on both corporate and individual taxpayers and naturally, taxpayers are confused and frustrated. Equally, there is arbitrariness and multiplicity of assessment in the imposition of

785Ibid Section 3 and 4.

786 Cap T2 LFN, 2004.

195 taxes, rates and levies by both the State and Local government

authorities.⁴⁷

The imposition of multiple and arbitrary taxes by State governments, in most cases increases the cost of doing business and discourages trade and investment in Nigeria. For the State tax laws to stimulate trade and investment there is need to amend the constitution to entrench fiscal federalism, and expand the taxing powers of the States. This will discourage the detestable trend of trying to tax everything possible by State Governments, without considering the overall impact on the economy.

There is an urgent need to address the issue of non-fiscal federalism in Nigeria, to attract foreign investors. To achieve this, the Constitution needs to be amended to increase the taxing powers of State Government‘s. Thus, Items 58,59, and 62 of the Exclusive Legislative List of the Constitution should be moved to the Concurrent Legislative List of the Constitution.

5.3 Imposition and Collection of Levies, Rates, charges, Fees etc by State