FG v States: Who Should Collect VAT?

The raging controversy between Rivers State and the Federal Government/FIRS, on who is empowered to collect Value Added Tax (VAT). has not only snowballed into a burning national debate, the judgement of the Federal High Court which was in favour of Rivers State collecting its VAT, is now the subject-matter of an Appeal at the Court of Appeal. Jibrin Samuel Okutepa, SAN, Chief Dan Orbih and Sadiq Abdul zero-in on the issues in this Crossfire, as they advance their differing positions

’Only Federal Government Can Collect VAT’ – Jibrin Okutepa, SAN

Introduction

The ranging controversies as to who has the power to make laws for purposes of VAT collections, are needless political controversies which are not deep rooted in constitutional logic and construction.
In this write up, I will demonstrate that the VAT Act 2004 as amended in 2020 is a valid Act of the National Assembly, and any law made by any States which is in conflict with that Act, is void. But, before then, the VAT Act or Decree came into being in 1993. Most of the political actors steering the controversies now were either actively involved, or were privy to the making of that law. In essence, the law has been with us in our federal operations.

Then the 1999 Constitution came into being, and we have been experimenting with it since 1999. We need to appreciate that the 1999 Constitution as amended under the Exclusive Legislative List empowers the Federal Government to make law on tax. See Item 59 on the Exclusive Legislative List which provides that the National Assembly has the powers to make laws on: Taxation of incomes, profits and capital gains, except as otherwise prescribed by this Constitution.

Again, when we look at the same Constitution under the Concurrent Legislative List, we will find that there is no power in the State to make laws to collect tax. The States can only make laws for the local governments to collect tax. Again these laws, must be subject to the laws validly made by the National Assembly.

Let us look at what the Constitution says. Under Part II: Concurrent Legislative List
Extent of Federal and State Legislative powers
Part D thereof relating to Collection of Taxes, it is provided in items 7- 10 that:
7. In the exercise of its powers to impose any tax or duty on –
(a) Capital gains, incomes or profits or persons other than companies; and
(b) Documents or transactions by way of stamp duties.

The National Assembly may, subject to such conditions as it may prescribe, provide that the collection of any such tax or duty or the administration of the law imposing it shall be carried out by the Government of a State or other authority of a State.

8.Where an Act of the National Assembly provides for the collection of tax or duty on capital gains, incomes or profit or the administration of any law by an authority of a State in accordance with paragraph 7 hereof, it shall regulate the liability of persons to such tax or duty in such manner as to ensure that such tax or duty is not levied on the same person by more than one State.

9. A House of Assembly may, subject to such conditions as it may prescribe; make provisions for the collection of any tax, fee or rate or for the administration of the Law providing for such collection by a local government council.

10. Where a Law of a House of Assembly provides for the collection of tax, fee or rate or for the administration of such Law by a local government council in accordance with the provisions hereof it shall regulate the liability of persons to the tax, fee or rate in such manner as to ensure that such tax, fee or rate is not levied on the same person in respect of the same liability by more than one local government council.

Clearly from item 9 hereof, the States can only make laws for local Governments to collect taxes and such law is subject to the law made by the National Assembly.

As you can see, the National Assembly had made or deemed to have made the VAT Act, 2004 as amended in 2020, which clearly provides for the administration, management and collection of VAT in Nigeria and vests the responsibility by virtue of Section 7 on the FIRS.

There is no doubt that the powers to make laws on Taxation or Taxes are vested in the National Assembly. That power was exercised, when the VAT Act was made as seen above. It is doubtful if State Governments can make laws to collect VAT, and to override the VAT Act made by or deemed to have been made by the National Assembly.
The issue that played out in the case of A.G LAGOS STATE v EKO HOTELS is germane here. In that case, what was before the court borders primarily on double taxation. The Lagos State Government had in operating the Sales Tax Law otherwise known as the consumption tax, which is a tax on goods and services, and in the same vein, the VAT being a Federal legislation also applies in Lagos. Eko Hotels was faced with demand notice from these two agencies of Government, both at the Federal and State level. If it went ahead to honour the notice by paying both VAT and consumption tax, it would amount to double taxation, thereby amounting to double jeopardy on the part of Eko Hotels.

In that case, the Supreme Court held that VAT Act, being an Act of the National Assembly had covered the field on the issue of Sales Tax, and must prevail over sales tax, and a State cannot impose consumption tax in addition to VAT.

I do not agree that, VAT is not part of the taxes mentioned in the Exclusive Legislative List.

The powers of the Federal Government to make laws on Tax is constitutional, and it does not share that powers with the States. The law therefore, is that where any law made by the State is in conflict with the law validly made by the National Assembly, that law by the National Assembly shall prevail.

The 1999 Constitution as amended is clear on this.

It provides that:

PART II Powers of the Federal Republic of Nigeria

4. (1) The legislative powers of the Federal Republic of Nigeria shall be vested in a National Assembly for the Federation, which shall consist of a Senate and a House of Representatives.

(2) The National Assembly shall have power to make laws for the peace, order and good government of the Federation or any part thereof with respect to any matter included in the Exclusive Legislative List set out in Part I of the Second Schedule to this Constitution.

(3) The power of the National Assembly to make laws for the peace, order and good government of the Federation with respect to any matter included in the Exclusive Legislative List shall, save as otherwise provided in this Constitution, be to the exclusion of the Houses of Assembly of States.

(4) In addition and without prejudice to the powers conferred by subsection (2) of this section, the National Assembly shall have power to make laws with respect to the following matters, that is to say:-

(a) Any matter in the Concurrent Legislative List set out in the first column of Part II of the Second Schedule to this Constitution to the extent prescribed in the second column opposite thereto; and
(b) Any other matter with respect to which it is empowered to make laws in accordance with the provisions of this Constitution.

(5) If any Law enacted by the House of Assembly of a State is inconsistent with any law validly made by the National Assembly, the law made by the National Assembly shall prevail, and that other Law shall, to the extent of the inconsistency, be void.

In the face of these clear provisions of the Constitution, the political controversies being generated by the spate of laws on VAT being made by State Houses of Assembly, require judicial interpretation of our Constitution. While it is true that some parts of Nigeria have lazy governmental structures, we must be careful not to act in violation of Nigerian Constitution.

As lawyer, my duty is to look at the law. I cannot in clear conscience, fault the validity of the VAT Act which has covered the field. I may be wrong, but I strongly believe the Constitution is in favour of the VAT Act.
Jibrin Samuel Okutepa, SAN

‘No! Fiscal Federalism Empowers States to Collect VAT’ – Chief Dan Osi Orbih‘

Advice

Fiscal Federalism, the battle that must be won. The South-South Governors must stand firm in the defence of fiscal Federalism, which is what the whole issue of the VAT collection controversy is all about. The Governors should be encouraged to give backing to the recent legal moves to reposition the collection of Value Added Tax, VAT, to the States where the duty rightly belongs.

Noting the recent amendments to the Value Added Tax law by Rivers State, and later Lagos State, one can describe the development as a big window for the South-South States to achieve the long desired quest for fiscal Federalism.

One must first note and commend the innovative and painstaking pursuit of this case, by Governor Nyesom Wike.

With this development, the long desired dream of many Nigerians for equitable distribution of resources has been given a very strong push. It is a bold and salutary move, in restructuring our tax collection system.

The soundness in the economics of Governor Nyesom Wike’s action, is seen in the speed with which Lagos State moved in the same direction towards pursuing the same objective. A nonpartisan action, driving the burning desire to give practical meaning to fiscal Federalism.

Other State Governors, especially in the South-South, must move with dispatch in support of VAT collection and retention by States. We cannot continue to practice political Federalism, with overbearing unitary economic policies.

The action is in the interest of all. What these amendments will achieve, is that it will encourage States to work harder in boosting economic activities, and engender a healthy competitive spirit that will, in the end, make Nigeria better for all.

I urge the other Governors to embrace this welcome initiative, and disregard the obvious but expected opposition from the Federal Inland Revenue Service, FIRS.

Chief Dan Orbih, National Vice Chairman, South-South, Peoples Democratic Party (PDP)

‘No! Power to Collect VAT is Not Exclusive to FG’ – Sadiq Abdul‘

Reasons

First, the fact that a law was existing before the 1999 Constitution, does not validate the law. Same must still conform with the Constitution. Section 315 of the Constitution, is clear in that regard.

Second, the wording of Item 59 of Part I the Second Schedule to the Constitution is unambiguous, in that it is specific about the class of taxes the Federal Government can exclusively collect, while Item 7 of Part II is also unequivocal to the effect that the NASS is empowered to; (a) delegate the collection of SUCH TAX (namely Income, Profit & Capital gains) to the State and (b) regulate the collection so delegated. Nothing in that Item suggests any concurrent power vested in NASS, to collect any other tax. Unlike Item 9 which clearly explains that the House of Assembly is empowered to: (a) make provisions (law) for the collection of ANY TAX (which may be VAT)…and (b) delegate such power of collection to a LG. Nothing is ambiguous in those provisions and the literal rule of interpretation – as settled in a plethora of cases such as Africa Newspaper v FRN – is that where the wording or provision of a statute is clear and unambiguous, there is no need to go beyond the ordinary, plain meaning of the wording.

Third, the Eko Hotel Case – relied upon is irrelevant, because it only relates to the issue of double taxation not the issue of respecting the constitutionality or otherwise of VAT being collected by the States. Besides, the case merely reiterated the provisions of Items 7 and 9 of Part II of the 1999 Constitution of the Federal Republic of Nigeria as amended.

Lastly, and in response to the Learned Silk, J.S. Okutepa’s introductory remarks, I hold the view that the controversy is needful, because the law must prevail and rule; impunity should not be encouraged, and every step (no matter how slight) in the direction of ensuring a true Federalism, must be commended.

Thus, the VAT Act is an ultra vires Act of the National Assembly, and as such, is unconstitutional, null and void, and should be ignored.

Sadiq Abdul, Legal Practitioner, Lagos