Introduction

Value Added Tax (“VAT”) is a major source of income for the Federal Government of Nigeria (“FGN”). In 2020, the FGN generated N1.54trillion from VAT alone¹. It is therefore not surprising that the FGN has vehemently litigated the case filed by the Rivers State Government (“RSG”) which seeks to empower the state governments exclusively to make laws relating to VAT. This blog post seeks to highlight the Court’s decision in the case under review and the FGN’s stance on VAT collection.

The case of the parties

The RSG suing through the Attorney General of Rivers State commenced an action against the Federal Inland Revenue Service (“FIRS”) and the Attorney General of the Federation (“AGF”)²  wherein it argued that by virtue of items 58 and 59 of the Second Schedule³, Part 1 of the Constitution of the Federal Republic of Nigeria 1999 (as amended) (“the Constitution”), the FGN acting through itself or any of its agencies lacks the powers to impose and collect taxes outside stamp duties, taxation of incomes and profits and capital gains; and that the powers of the agencies of the FGN like FIRS is limited to the administration of these taxes only. The RSG therefore contended that the imposition of VAT by the FIRS on consumers of goods and services in States of the Federation is null and void and of no effect whatsoever.

In opposing the suit, the FIRS contended that the National Assembly has extensive powers to enact legislations to cover all the taxes referenced in RSG’s case⁴. The FIRS argued that the taxes referenced in the RSG’s case fall under item 59 of the Second Schedule, Part 1 of the Constitution. The FIRS further argued that RSG’s grouse against the Taxies and Levies Act is untenable having failed to signify the provision of the law that is unconstitutional.

On the part of the Attorney General of the Federation (“AGF”), the AGF contended that by virtue of items 58, 59, 67 and 69 of the Second Schedule, Part 1 of the Constitution, the National Assembly has powers to enact laws on taxation. The AGF also argued that since the FGN has legislated on items that are contained in the Value Added Tax Act (“VAT Act”)⁵, there will be no need for the states to legislate over the same items under a state law. The AGF also argued that there is no portion of the Taxes and Levies Act that is unconstitutional. Furthermore, the AGF contended that the RSG cannot challenge the powers of the National Assembly which is exercised in consonance with the Second Schedule of the Constitution.

After taking arguments from all the parties, the Court determined three issues which were essentially aimed at settling whether it was the FGN or RSG that has powers to legislate over items that fall under VAT.

The Court’s decision

On the 9th of August 2021, the Court held that the FGN is only entitled to impose and collect taxes with respect to classes of taxes outlined in items in 58 and 59 of the Executive Legislative List. Therefore, the powers to legislate and enforce the VAT Act and other taxes not listed in items 58 and 59 lies exclusively with the State Government. The Court also held that the provisions of item 7 (a) and (b) of Part II of the Second Schedule to the Constitution do not by any stretch of the imagination extend the legislative competence of the National Assembly to the imposition of any form of tax outside the class of taxes listed in items 58 and 59 of the Executive Legislative List. Consequently, the Constitution does not empower the National Assembly to enact any law to impose any form of sales tax, including VAT and any other class of tax outside those specifically mentioned in item 7 (a) & (b) of Part II, Second Schedule.

Finally, the Court held that it was bound by the decision of the Court of Appeal in Uyo Local Government Council v Akwa Ibom State Government & Anor (2020) LPELR-49691 (CA) where the Court nullified the Taxes and Levies Act for being inconsistent with the provisions of the Constitution. Consequently, the Court held that the Taxies and Levies Act⁶ was unconstitutional, and any tax or levy provided for in the Act is automatically unconstitutional, null and void.

Our comments

While some lawyers have commented that the Federal High Court appeared to have arrived at its decision per incuriam because there is no portion of the Constitution described as “residual list”, we are of the opinion that the Federal High Court rightly interpreted the provisions of section 4 (7) (a)-(c) of the Constitution when it held that the National Assembly could only legislate on the species of taxes listed in items 58 and 59 of the second schedule to the Constitution.

We note that the FIRS has filed an appeal against the decision of the Federal High Court in this case, we anticipate that this dispute may be contested all the way to the Supreme Court of Nigeria. We expect that when the Supreme Court of Nigeria is presented with an opportunity to make a pronouncement on the constitutionality or otherwise of the VAT Act, the apex Court will embrace the opportunity and provide a definite interpretation of the Constitution in settling this seemingly long-standing constitutional controversy.  Although that journey may last for several years, however, one thing is certain, at the end of the journey, Nigerian citizens and corporate entities will not be saddled with the agony of double taxation.

1. https://guardian.ng/business-services/nigeria-generated-n2-9tn-from-vat-cit-last-year ↩
2. Suit No. FHC.CS.149/2020 between A.G of Rivers State v FIRS & Anor. ↩
3. Stamp duties; taxation of incomes and profits and capital gains, except as otherwise prescribed by this Constitution. ↩
4. VAT, withholding tax, education tax and technology tax. ↩
5. Value Added Tax Act Cap V1 Laws of the Federation of Nigeria 2004 (as amended). ↩
6. Taxes and Levies (Approved List for Collection) Act, Cap T2, Laws of the Federation of Nigeria, 2004.↩