The Legality or Otherwise of Paying Taxes on Sales/Consumption to Both the Federal and State Governments by Nigerian Companies’

Part A

INTRODUCTION

This write-up is premised on the demand made for payment of VAT by the Federal Government which is currently charged on goods and services (except those exempted) purchased by a consumer at the rate of 7.5% of the total sales and the demand by State Governments for consumption taxes (called by various names) on goods and services purchased by a consumer at the rate stipulated in the law and charged on the total sales to such consumer. The major question that calls for concern is whether these demands amount to double taxation and whether Companies are obliged to accede to the demand of both taxing authorities.

Highlighted below is a table of consumption taxes which are imposed by some of the State Governments and which are payable in addition to VAT. Also highlighted in the table are comments on the status of some of these laws for which further elaboration will be given elsewhere in this write-up.

VAT on the other hand is imposed at the rate of 7.5% on the cost of all vatable goods and services which if applied to hotels and restaurants will mean goods and services consumed in these organisations.

This question as to who is to collect VAT or consumption tax has been a subject of debate as far back as 1979 and has continued till date, largely due to the interpretation of the provisions of the Constitution, the most recent of which is the case of AG Rivers State v. FIRS & AG Fed.

The Legality or otherwise of paying taxes on sales/consumption to both the Federal and State Governments by Nigerian Companies’. By Tolani Fasina

Part B

JUDICIAL DECISIONS ON THIS SUBJECT

There have been varying judicial pronouncements as to who is entitled to collect consumption tax and which takes priority where the same is imposed by both the state and the federal government. A summary of the decisions of the courts in each of these cases is highlighted below:

a)        Mama Cass & Ors v. FBIR & AG Lagos (2010) 2 TLRN 99 (FHC): Here, the VAT Act of 1993 imposed a tax of 5% on business engaged in catering and restaurant services and the same tax was also imposed on the same kind of business by the Lagos State Sales Tax Law of 1994, thus subjecting the same service to tax under two enactments. The Court held that since the VAT Act had already included the service provided for in the Lagos Sales Tax Law, the doctrine of covering the field applies. The Federal High Court declared that “the Plaintiffs, severally can only be ‘taxable person’ or remitting agent in respect of the amount due as tax on their sales to their consumers to a single body or agency; and that agency is the Federal Government through the 1^st Defendant.”

b)        Mas Everest Hotels Limited v. AG Lagos (2010) 2 TLRN 1: Here, the High Court of Lagos State held that the Hotel Occupancy and Restaurant Consumption Law (HORCL), Cap H8, Laws of Lagos State, 2015 is valid because it does not purport to apply to specific matters on item 59, Exclusive Legislative List over which the National Assembly could legislate but rather it affects the spending power of the consumer.

c)        Princely Court Limited v. AG Lagos State & 2 Ors (2010) 3 TLRN 30 – Here, the Federal High Court was asked to consider the validity of the HORCL vis a vis the VAT Act and the 1999 Constitution. The Court held that the HORCL was void for inconsistency with constitutional provisions and the VAT Act.

d)        Eko Hotels Limited v. Federal Board of Inland Revenue (SC. 321/2007) (delivered in 2017): In this case, the Supreme Court held that the VAT Act has effectively covered the field and prevailed over the Lagos State Sales Tax Law and levying the same tax on the same goods and services will amount to double taxation.

e)        Nigeria Employers Consultative Association (NECA) and Retail Supermarkets Nigeria Limited v. Kano SIRS (delivered in 2018) – The Federal High Court in Abuja declared section 96 and 97 Kano State Revenue Administration (amendment) Act Law no. 3 of 2017 null and void because it seeks to legislate on a field covered by VAT Act. The Court held that the imposition of 5% consumption tax over goods and services which are already subject to VAT amounts to double taxation and that the said sections are inconsistent with the Second Schedule of the 1999 Constitution

f)         AG Lagos v. Eko Hotels & Anor (2018) 36 TLRN 1: The Supreme Court in this case had to look into 5 issues, one of which was whether the VAT Act has covered the field of Sales Tax and its provisions over the Sales Tax Law of Lagos State. The Court held

that sections 2 of the VAT Act and the Sales tax Law of Lagos State contains similar provisions. The goods and services covered by both statutes are the same, it then follows that the VAT Act has effectively covered the field and thus prevails over the sales Tax Law of Lagos State. Ejembi Eko, JSC however made it clear that the doctrine of covering the field will only apply where the Act of the National Assembly was validly enacted. The Supreme Court also had to decide on whether the imposition of the VAT Act and the Sales Tax Law will create double taxation and held that both statutes do not only cover the same goods and services, they also target the same consumers and as such will amount to double taxation.

g)        HOMAL v. AG Lagos & FIRS (2019) 47 TLRN 1: The Federal High Court held that any provision of the VAT Act which deals with services consumed in hotels, restaurants and event centres in Lagos is inconsistent with the constitution and is void. The Court also relied on the Taxies and Levies (Approved list for collection) Order 2015 which was subsequently declared null and void by the Court of Appeal in Uyo LG v. Akwa Ibom State. The decision was however set aside by the Court of Appeal on 1^st July, 2022. The Court held that the though the Lagos State HORC Law and Hotel Occupancy and Restaurant Consumption Fiscalisation) Regulations were validly made, the VAT Act being an existing federal law and having covered the field on consumption tax, its provisions should prevail over similar state laws, including HORC Law and Hotel Occupancy and Restaurant Consumption Fiscalisation) Regulations. The Court however refused to rule on the validity or otherwise of the Taxes and Levies Approved List of Collection Act. A further appeal to the Supreme Court has been filed.

h)        Uyo LG v. Akwa Ibom State (2020) LPELR-49691 (CA): The Court of Appeal ruled that the Taxes and Levies Act, LFN 2004 together with any purported amendment to same is unconstitutional, null and void due to the provisions of section 1 of the Act, which seeks to place the Act in a position above the 1999 constitution. The Court of Appeal stated “nothing can operate to save any part of the Act”, as it begins “with a clause that undermines the supremacy of the Constitution.” “… The virus in the introductory clause of the Act has infested the entire Act and thereby rendering it unconstitutional”.

i)          Ukala v. FIRS (2021) 56 TLRN FHC 27: Here the Federal High Court held that the constitution expressly prohibits the National Assembly from enacting a law on any other head of revenue of taxation except for capital gains, incomes or profits and payment of stamp duties. Thus, where the National Assembly veers into making law for any other item outside those provided under the constitution such as VAT, those laws become a nullity and are voided by inconsistency.

j)          AG Rivers State v. FIRS and AG Federation (Suit No: FHC/PH/CS/149/2020) (delivered on 9^th August, 2021): The Federal High Court had to rule on the constitutionality or otherwise of the VAT Act as well as other enactments of the national Assembly imposing taxes on matters other than capital gains, incomes or profits of companies and stamp duties. The Court held, amongst other things that the power of the Federal Government to collect taxes are limited to those stated in the Exclusive legislative list and all others which are not contained in the ELL or the Concurrent Legislative lists are within the residual powers of the state and this includes VAT, Education Tax, Technology Tax , amongst others. The Court further held that the Taxes and Levies (approved list for collection) Act as well as the VAT Act is null and void and stated that it is the State Government that has the power to legislate over and collect such taxes. The matter is now on appeal. The Appellants obtained an order for parties to maintain status quo pending the outcome of the appeal but an appeal to the Supreme Court against this order has been filed by the State Governments. This appeal is pending.

 The Legality or otherwise of paying taxes on sales/consumption to both the Federal and State Governments by Nigerian Companies’. By Tolani Fasina

Part C

DOES THE LEVYING OF THESE TAXES AT BOTH THE FEDERAL AND STATE LEVEL AMOUNT TO DOUBLE TAXATION AND WHAT REMEDIES ARE AVAILABLE FOR COMPANIES?

From the above cases, it is quite clear that there is really no distinction between VAT and the consumption tax imposed by the respective states. It is the same tax and charging both at the same time brings up a clear case of double taxation because not only does it cover the same goods and services, they also target the same consumers and such taxes should only be remitable to a single authority. See the case of Nigeria Employers

Consultative Association (NECA) and Retail Supermarkets Nigeria Limited v. Kano SIRS (supra).

The most recent decision of the Court on this issue is the Court of Appeal’s decision in FIRS v. HOMAL & AG Lagos (delivered by the Court of Appeal on 1^st July, 2022) which put to rest some of the varying decisions of the respective Federal High Courts. The Court of Appeal by upholding the powers of the FIRS to collect VAT in hotels and restaurants and having ruled that the VAT Act has covered the field in respect of consumption taxes, has in effect rendered invalid the respective state laws imposing consumption taxes and Companies can place reliance on the same to refuse payment of consumption taxes (by whatever name it is called, provided it is being taxed on the same goods and services) to the respective State Governments and not just Lagos State.

Companies can, as further protection, institute an action against the respective state governments who are demanding the payment of consumption tax for an order of injunction restraining them from demanding the collection of the same in light of the decision of the Court of Appeal based on the principle of stare decisis. The principle of stare decisis (the doctrine of precedent) makes it imperative for an inferior court to follow earlier judicial pronouncements (decisions) of superior courts of records, when the same points arise again in litigation – Gebi v. Dahiru (2012) 1 NWLR (Pt. 1282) 560 (CA), Adedayo V. P.D.P (2013) 17 NWLR (Pt. 1382) 1 (SC).

In Aghedo v. Adenomo (2018) 13 NWLR (Pt. 1636) 264, the Supreme Court held that, “The principle of stare decisis or precedent, where appropriate, must be resorted to and applied by courts because settled matters as decided earlier by courts should persist. The doctrine of judicial precedent or stare decisis is well rooted in Nigerian jurisprudence to be strictly followed to avoid confusion.” Thus, the Federal High Court to whom the action will be presented, would be bound to follow the decision of the Court of Appeal as it is the same issues that are being referred for determination.

CONCLUSION

It is the writer’s considered opinion in light of the decisions above that Companies are not under the obligation to collect and remit both VAT and consumption tax in any state. Its only obligation is the collection and remission of VAT to the FIRS.

With specific reference to Rivers State, the writer maintains this same position particularly because by virtue of the application made by the Federal Inland Revenue Service that the execution of the judgement of the Federal High Court will affect the revenue of the Federation and as such parties should maintain status quo and the grant of same by the Court of Appeal, it is safe to say that status quo here, is status quo ante bellum, that is, the state of affairs which existed before the commencement of the suit. The further appeal by the State government to the Supreme Court to challenge this order further cements this position. In other words, even in Rivers State, FIRS is empowered to continue to collect VAT pending the outcome of the appeal. In light of this and against the backdrop of the HOMAL case, Rivers State cannot continue to collect consumption tax as well.

It would however seem that states are not willing to comply with this decision as Lagos State recently deployed an Upgraded Consumption Tax Collection Process for the Hospitality Sector. This in the writer’s opinion further highlights the deplorable state of the Nigerian judicial system and the blatant disregard for the rule of law, a stance which must be revisited to allow for an effective and attractive business environment.