It has been a busy time for Nigeria’s Federal Inland Revenue Service (FIRS); not necessarily because of the increase in its 2021 Value Added Tax (VAT) collections (for the first time, it grossed +N1trillion in VAT collections in the first half of a year), more because of the many fights it’s embroiled in. One major fight is the bid by some States, led by Rivers and Lagos States, to take control of the collection and appropriation of VAT within their territories. Armed with the August 9, 2021 decision of Nigeria’s Federal High Court (FHC) sitting at Port Harcourt in Attorney General for Rivers State v. FIRS & Another, the States claim to their VAT revenue is that the Federal VAT Act 1993 (as amended) is unconstitutional. It would appear that Rivers State enacted its VAT Law No. 4 of 2021 on August 19, 2021 on the strength of the decision while Lagos State has promised that its VAT Law is in the offing. Earlier on December 11, 2020, same FHC sitting at Port Harcourt in Emmanuel Ukala v. FIRS & Another had held that the FIRS had no authority or jurisdiction to audit or investigate the Plaintiffs for VAT among other Federal taxes and that the appropriate tax authority is the Rivers State Board of Internal Revenue. Yet earlier, same FHC, this time, sitting in Lagos State had in October 2019, in Registered Trustees of Hotel Owners and Managers Association of Lagos v. Attorney General of the Federation & Another declared the charging provisions of the VAT Act (specifically Sections 1,2,4,5 and 12 thereof) unconstitutional.

FIRS is not without some respite. It has set up an older decision of another FHC, this time, one that sat in Kogi State in the case of Incorporated Trustees of Kogi State Hoteliers Association v. Kogi State Board of Internal Revenue & Others; where the FHC had held the Kogi State Taxation of Consumable Goods and Services (in Hotels, Restaurants etc) Law 2015, invalid in the face of the VAT Act. According to the Court, the VAT Act had covered the field of the taxation of goods and services. This position of the FHC was as established by Nigeria’s highest Court, the Supreme Court, in Attorney General of Lagos State v. Eko Hotel International Plc & Another. In this case, the Supreme Court invalidated Lagos State’s Sales Tax Law on the premise that, among others, the VAT Act had covered the field of the taxation of goods and services in Nigeria. It is relevant that the Supreme Court assumed the validity of the VAT Act in the case and as such the question of the validity of the VAT Act which Lagos State had raised in its arguments was not pronounced on by the Supreme Court.

An opportunity had actually arisen for the Supreme Court in 2014 to decide the issue of the validity of the VAT Act in Attorney General of Lagos State v. Attorney General of the Federation. The Supreme Court declined to hear the case on the ground that it was without jurisdiction to hear a case that bothers on a complaint against the actions of FIRS. This was despite Lagos State’s argument that its case bothered on the constitutionality of the VAT Act and the illegality of VAT collection by FIRS, an agency of the Federal Government of Nigeria. So it is, that with the developments in the FHCs’ decisions especially that of the more recent, Attorney General for Rivers State v. FIRS & Another, the Supreme Court (of course after the Court of Appeal) may have a third opportunity to ultimately decide on the question of the validity of the VAT Act.

But then, all that has so far been said is lawyer-speak; there actually should be more. If all that is required to be done is for the National Assembly to amend Nigeria’s Constitution to confer constitutionality on the VAT Act or any new variant, why should politics not allow it to do so? It is obvious that the real debate is not so much about the VAT Act, a relic of Nigeria’s Military past that predates the Constitution it seeks validity from, but more on the administration of the tax on the supply of goods, services and related matters in Nigeria. Indeed, to ask the Courts to decide the issue of the validity of the VAT Act is simply to prolong the reality of appropriately answering a fundamental question – how does Nigeria intend to tax the supply of goods, services and related matters just like its peers, globally? The court cases are just a good delay tactic for politicians who are abdicating the responsibility of being factual and agreeable. Focusing on real issues is a virtue of good leadership; to dance around real issues is not. Robust debates on the future of the administration of the tax on the supply of goods, services and related matters in Nigeria is what is required and the appropriate forum is the chambers of the Federal Lawmakers, preferably after hearing tax policy makers. Should the tax on the supply of goods, services and related matters in Nigeria be federally administered and if so, how should revenues be accounted for and appropriated? Or should it be administered States and if so, how will inter-States supply and or consumption of goods, services and related matters be dealt with? Or should we have a mix of both? Even more fundamentally is the question whether our current VAT collections is optimal in any respect – with an average NGN1.1trillion annual VAT collection in the last 5years, given a current +US$500billion (+NGN250trillion) economy, shouldn’t we better focus on optimizing the revenue from the taxation of the supply and or consumption of goods, services and related matters, in a manner that is least burdensome on the taxpaying public?

YearQ1Q2Q3Q4Grand Total
2016                        186,428,175,954.73                                     187,028,119,697.25                             196,695,180,629.30                         207,353,219,850.59                    777,504,696,131.87
2017          221,380,461,517.34                  246,303,322,470.96              250,560,689,062.33            254,103,934,478.59                  972,348,407,529.22
2018                       269,793,776,057.75                                     266,731,764,172.63                            273,504,620,525.01                         298,010,405,441.18                1,108,040,566,196.57
2019                     289,038,337,447.65                                    311,943,065,869.95                               275,116,219,968.75                        308,482,956,077.51               1,184,580,579,363.87
2020                        324,579,124,652.33                                  327,195,289,088.00                         424,708,184,453.88                         454,688,211,726.06                1,531,170,809,920.28

Source: National Bureau of Statistics

As at today, FIRS’ appeal of the decision in Attorney General for Rivers State v. FIRS & Another to the Court of Appeal is where we are.  FIRS is wrong to insist on the collection of VAT (along with interests and penalties) in the face of the unresolved issues. The letters by Rivers State (with Lagos State in the offing) for VAT to be paid to them is manifestly untenable.  The threats to taxpayers that penalty and interests will be imposed on VAT that is not collected during this period of legal theatrics is glaringly insensitive to commerce. It is one thing for businesses to impose VAT on their invoices, it is another thing for customers and clients to pay the VAT; wherefor should the taxing authorities penalize businesses whose customers/clients refused to pay VAT on the strength of the pending imbroglio? Better policy-making leadership than braggadocio is what is required. This really could be a good time for cashflow savings for taxpayers with the best of tax lawyers.

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