Chimeremeze Nwachukwu

17th Jan, 2025 : 9;16am

Introduction

Amid ongoing public debates in Nigeria regarding tax reforms brought by the introduction of four new bills by the current administration to the National Assembly for passage into law[1], there exist a foundational concern, which appears to have been overlooked by the public. This concern is said to be foundational as it was the spark which erupted the wave of conversations that had led us up to this point. The question is Who should collect Value Added Tax (VAT) in Nigeria? Before the August 2021 judgment, the Rivers State Government challenged the Federal Government's authority to legislate and administer VAT collection and consequently the authority of the of the Federal Inland Revenue Service to collect Value Added Tax. A decision was made in favour of the Rivers State Government by the court which held that:

That the Federal Government of Nigeria (“FGN”) lacks the power to legislate on taxation matters, other than in respect of stamp duties and the taxation of incomes, profits, and capital gains pursuant to the provisions of Items 58 and 59 of Part I of the Second Schedule to the Constitution of the Federal Republic of Nigeria 1999 (as amended), (the “Constitution”), and the residual powers conferred on the State Houses of Assembly to make laws under section 4(7) of the Constitution;

That the FIRS does not have the power to enforce and administer laws inconsistent with, or which exceed the legislative powers of the National Assembly; and

That the legislative competence of the National Assembly to impose taxes and levies, and to delegate the power to collect taxes, does not include the power to levy or impose any form of sales tax, such as Value Added Tax (“VAT”) or any other similar taxes.[2]

The decision of the court is now currently on appeal and will impact significantly whatever reforms are being put in place by the current administration through the tax bills. These bills do not address the issue of who should collect VAT, as the question remains one which it seems can only be solved through constitutional amendment to Part I and II, Second Schedule, CFRN 1999, providing clearly who is authorised to administer and collect VAT in Nigeria. To carefully understand the decision of the court which is now on appeal, it will be wise to look in detail into the argument of both sides and draw an opinion based on such analysis.

River State’s Position

The Argument of the Attorney General of Rivers State who is the nominal party in the case is quite simple. They argue that from the provisions of the constitution in respect of delineation of issues which the federal and state government can control both exclusively and jointly[3], the Exclusive Legislative List does not make mention of the Consumption, Sales or Value Added Tax of any kind. They further argue that in line with the provisions of the constitution that any issues not contained in the exclusive of concurrent list, rests within the exclusive purview of the state (residual)[4] and as well the provisions of the Taxes and Levies (Approved List for Collection) Act[5] which provides that the Federal Government is the authority to collect VAT is in contrast with the provisions of the constitution and should be declared invalid.

Federal Government’s Position

In response to the argument of Rivers State, the Federal Government argues that they do in fact have such authority via the provision of Taxes and Levies (Approved List for Collection) Act but principally such right is recongised by the constitution by virtue of Item 62, Part I, Second Schedule, CFRN 1999 which empowers the federal government to regulate and legislate on international and inter-state trade and commerce (including matters incidental or supplementary thereto).

With this, they argue that the scope of Value Added tax rests in the Exclusive Legislative List and with the Federal Government as it would come under the purview of taxation of inter-state commerce and transactions. They argue that the value added tax being a sales tax is a tax based on the transactions which occur across state lines,such issue being one which by law they are empowered to legislate upon. They also state that the reason the scope of their authority should be recognized to as well cover transactions occurring within the state (intra-state) is based on the doctrine of covering the field and to avoid double taxation on the issue. On covering the field, they argue that based on the provisions of the constitution allocating authority to the federal government on taxation of inter-state transactions and to the state govt on taxation of intra-state transactions[6], it can be reasoned that the constitution has created an avenue for both the Federal and State Government to collect tax on transactions and sales.

Therefore, the best way to view Sales, Consumption or Value Added Tax should be as one which is on concurrent list and with that the provision of the constitution in Section 4(5) CFRN 1999 (as amended) which states that for matters on the concurrent list, where the national assembly makes a law which covers the field, laws made by the state which are inconsistent to that law are declared void is to be applied and should nullify laws made by state government to collect VAT.

My analysis and opinion of these arguments seems to rest with that of the Federal Government and this conclusion stems from the decision of the court in the case of Attorney-General of Ogun State v Aberuagba,[7] where the Supreme Court where faced with the question of the right of the Ogun State Government to legislate on taxation of sales transaction in the state held that State Governments are only empowered to impose sales tax (a form of consumption tax) on intra-state transactions, without more. The implication of the Supreme Court’s decision is that State Governments cannot validly impose sales tax on inter-state or international transactions, both of which are matters exclusively reserved for the FGN on the Exclusive Legislative list. From this decision, it can be seen that there exists different valid answers to the question of who has the authority to administrate taxation on trade and commercial transactions of which Value Added Tax would come under. With this arrangement, if the argument of the federal government that the issue be therefore seen as a concurrent one, then the provisions of Section 4(5) CFRN 1999 can be validly applied allowing the federal government to have effectively covered the field with the Taxes and Levies (Approved List for Collection) Act.

Conclusion

The analysis of this legal issue shows the pending confusion which the decision of the court on appeal may bring about as the current reforms on Value Added Tax in Nigeria by the four tax bills presented to the National Assembly seems to ignore a pressing question on the provisions of the constitution which is yet to be conclusively answered. The position of the author is simple, the introduction of the tax reform bills by the current administration are welcome and such enthusiasm for reforms on the issue of taxation of transactions in Nigeria should further address through an amendment to the constitution, the lingering foundational question of Who should collect VAT in Nigeria.

Footnotes

1. In August 2023, President Bola Ahmed Tinubu inaugurated the Presidential Committee on Fiscal Policy and Tax Reforms in Abuja. As nominally suggested, the committee has been working on reforming how taxes are administered, charged and remitted in Nigeria. This committee’s activities have culminated in the proposal of the Tax Reform Bills which have caused a stir within policy circles and public debates in Nigeria. The bills include the Nigeria Tax Bill, Nigeria Tax Administration Bill, Nigeria Revenue Service (Establishment) Bill, and Joint Revenue Board (Establishment) Bill.

2. (Unreported judgment of the FHC, delivered by Hon. Justice Stephen Dalyop Pam, on August 9, 2021, in Suit No. FHC/PH/CS/149/2020).

3. See Second Schedule Part I and II of the Constitution of the Federal Republic of Nigeria, 1999

4. See Section 4(7) of the Constitution of the Federal Republic of Nigeria, 1999

5. Cap. T2 Laws of the Federation of Nigeria (“LFN”) 2004.

6. The interpretation of Section 4(7) of the CFRN and Item 62 Part 1 of the Second Schedule is to the effect that taxation on intra -state commerce lies with the state government.

7. (1985) 1 NWLR (Pt. 3) 395.