Value Added Tax: FG v States and the Nigerian Taxpayers Dilemma

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On Monday, August 9, 2021, the Federal High Court in Port Harcourt decided that the Rivers State Government (rather than the Federal Inland Revenue Service) had the authority to collect VAT in the state. This is based on the idea that only the State has the constitutional authority to levy consumption or sales taxes in its area.

The Rivers State Government (plaintiff) had filed a case, with suit No. FHC/PH/CS/149/2020, against the FIRS (first defendant) and the attorney general of the federation (second defendant) over demands, threats, and intimidation of the state residents to pay PIT and VAT by the tax agency. The state government had sought 11 reliefs from the court. These include a declaration that the power of the federal government to delegate the collection of taxes can only be exercised by the state government or other authority of the state and no other person according to provisions in Part II (concurrent legislative list) of the Second Schedule of the 1999 constitution as amended.

The Attorney General for Rivers state filed an Originating summons which was to challenge the powers of the Federal Government to administer VAT and other taxes not expressly listed in the Exclusive legislative list in the constitution. The Attorney General sought declaratory reliefs to uphold the powers of the Rivers state government to administer and collect VAT within their jurisdiction. To this, the court raised three issues:

1.     Whether the Federal Government is entitled to make laws for the purpose of taxation other than for taxation of incomes, profits and capital gains. 

2.     Whether the powers of the National Assembly to impose tax or duties on capital gains, incomes or profits of persons and on documents or transactions by way of stamp duties extends to and includes the power to levy or impose any form of Sales Tax including VAT or any other form of Levy.

3.     Whether the Taxes and Levies (Approved List for Collection) Act is constitutional

The court, presided by Justice Stephen Pam, dismissed the preliminary objections filed by the defendants that the court lacks jurisdiction to hear the suit and as such the case should be transferred to the court of appeal for interpretation. Justice Pam stated that after a diligent review of the issues raised by both the plaintiff and the defendants, the plaintiff has proven beyond doubt that it is entitled to all the 11 reliefs it sought in the suit. The court, therefore, granted all the reliefs sought for by the state, explaining that there is no constitutional basis for the FIRS to demand and collect VAT, withholding tax, education tax and technology levy in Rivers state or any other state of the federation. The court further declared that the defendants are not constitutionally entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on the residents of Rivers state and any state of the federation.

Subsequent to this judgment, the Rivers State Government has filed the Value Added Tax Law No. 4 of 2021 empowering the state internal revenue service to collect VAT immediately. Other states like Lagos states have also started positioning themselves to collect VAT in their various states since the decision of the Federal High Court covers all the states in Nigeria. However, despite the attempts of the FIRS to stay execution of the judgment, the Federal High Court on Monday 6th September 2021, dismissed the motion to stay the judgment pending the determination of the appeal.

 Although the FIRS in various statements to the public have continued to tell taxpayers to keep paying taxes to them, it is important to note that the court also held that the Taxes and Levies (Approved List for Collection) Act is void to the extent that it enables the Federal Government to collect VAT, Withholding Tax, Education Tax and Technology Tax. The Taxes and Levies (Approved List for Collection Act) was declared null and void to the extent that it enables the Federal Government to collect VAT, Withholding Tax, Education Tax and Technology Tax. The question that arises is what then enables the states to collect the above taxes?  The judgment alone is not enough grounds for States to start collecting the taxes as other things like rates and time of payment need to be determined. It is on this premise that the Rivers State Government has promulgated the Value Added Tax Law of the state to enable the Rivers State Internal Revenue Service to collect VAT.

 The current tussle between the FG and some states have placed taxpayers in a dilemma considering pressure from the FIRS and the state revenue services to remit Value Added tax to them. However, it has been established that the FIRS has no legal enablement to collect the taxes and also that states without enabling laws do not have the power to collect the taxes. This is because taxes are pecuniary in nature and must be imposed by a valid and existing law. States like Lagos state, have begun working on passing a relevant law that empowers it to collect VAT. In understanding the current legal situation, it is important to note that the ruling of the Federal High Court subsists unless the decision is upturned by a Superior Court of competent jurisdiction.

This article was authored by Mobolaji Oriola, Founding Partner at Allen & Brooks, Victoria Island, Lagos. It was co-authored by Ewomazino Oyibotha, Associate and Chinweifenu Agusiobo of the same firm. For clarification, please send a mail to enq@allenandbrooks.com

Mobolaji Oriola

Mobolaji Oriola

Mobolaji Oriola is a Lawyer, Arbitrator and Humanitarian. He is one of the Founding Partners at Allen & Brooks and has advised a broad range of clients across Fintech, Entertainment, Real Estate, Oil & Gas, Arbitration, Project Finance. Mobolaji Oriola is a recipient of Unity Bank's Humanitarian Award and is an alumni of the prestigious Harvard Business School.

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