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Taxation is the livewire of any low-income country
whose export earnings does not contribute a significant part of its annual
Gross Domestic Product due to trade deficit.
While taxation remains an obligation, there exists
various of these obligations imposed by the Government of Nigeria of which value
added tax is one. Value added tax unlike other kind of taxes is an indirect tax
borne by the final consumer of goods and services that are subjected to this
tax. It spreads through the whole value chain/supply process and ends up on the
invoice of the person benefitting from the goods supplied or services rendered.
Similar to value added tax is the sales tax operated
in some jurisdictions and charged on supply of goods and services. While both
taxes are consumption and indirect taxes borne by the final consumer, what
differentiates them is the collection mechanism. Unlike sale tax that is
collected by the retailer at the final point of sale in the supply chain, value
added tax is collected by sellers at each stage of the supply chain i.e. from
the manufacturer- distributor-wholesaler-retailer-final consumer.
Value added tax is mostly preferred by the government
due to the fact that revenue is collected all through the chain of supply
unlike the sale tax which is paid only at the final point of sale by the final
consumer of the goods supplied or services rendered.
According to the National Bureau of Statistics
Sectorial Distribution of Value Added Tax,[2]
Nigeria generated N275.12bn in the Q3 of 2019; N324. 58bn in Q1 2020; N327.20bn
in the Q2 of 2020; N424.71bn in the Q3 of 2020; N454.69bn in the Q4 of 2020 and
N496.36bn in the Q1 2021 as Value added tax.
The value added tax in Nigeria is taxed pursuant to
the provisions of the Value Added Tax Act[3]
and the relevant amendments in the Finance Act of 2019[4]
which set the VAT rate at 7.5% from the usual 5% of the value of all taxable
goods and services as contained in the VAT Act, and the cumulative provisions
of the Finance Act 2020[5]
which set the effective date.
Vatable Goods and Services[6]
Generally, all goods and services apart from those
listed to be exempted in the VAT Act are chargeable to VAT either at zero rate
or at 7.5% of the value of the goods or services. The following goods are
exempted from VAT: medical and pharmaceutical products; basic food items; books and educational
materials; baby
products; fertilizer; locally produced
agricultural and veterinary medicine; farming machinery and farming transportation
equipment; all
exports; plant; machinery and goods
imported for use in the export processing zone or free trade zone: provided that 100 percent
production of such company is for export; plant, machinery and equipment
purchased for utilisation of gas in down-stream petroleum operations; Tractors; ploughs and agricultural
equipment and implements purchased for agricultural purposes; locally manufactured sanitary towels, pads or
tampons; commercial aircrafts; commercial aircraft engines, commercial airlines
registered in Nigeria
Also, the following services
are exempted from VAT: medical services; services rendered by microfinance banks; people’s banks and mortgage
institutions; plays and performances conducted by
educational institutions as part of learning; all exported services; tuition relating to nursery, primary, secondary and
tertiary institutions; airline transportation tickets issued and sold by
commercial airlines registered in Nigeria; hire, rental or lease of tractors,
ploughs and other agricultural equipment for agricultural purposes”.
The following are classified as zero-rated[7]
goods and services:
non-oil
exports;
goods
and services purchased by diplomats; goods purchased for use in humanitarian
donor funded projects "humanitarian donor funded projects" includes projects
undertaken by Non Governmental
Organisations and religious and social clubs or societies recognised by law
whose activity is not for profit and in the public interest[8]
Administration of VAT in Nigeria
The Federal Inland Revenue Service (FIRS) is saddled
with the administration of the tax[9].
The VAT Act further mandates
every taxable person to register upon commencement of business with FIRS for the purpose of the
tax[10].
Furthermore, every ministry, statutory body
and other agency of government
are compelled to register
as collecting agents
of the FIRS and
production of evidence of registration with the FIRS shall be a condition
precedent before any contractor transacting business with the Federal,
State or Local
Government
shall be awarded any such
contract.
All non-resident company that
carries on business in Nigeria are
to register for VAT with the FIRS, using the address of the
person with whom it has a subsisting contract, as its address for purposes of
correspondence relating to the tax and such taxes shall be include in its invoice which the person to whom the
goods or services are supplied in Nigeria shall withhold and remit the tax to the FIRS in the currency of
the transaction.[11]
All registered persons shall keep such records and
books of all transactions, operations, imports and other activities relating to
taxable goods and services as are sufficient to determine the correct amount of the tax due[12].
Prior to the enactment of the Finance Act 2019, the
VAT Act ensured an all-inclusive participation of the respective States and the
FIRS in the administration of value added tax by creating a Value Added Tax
Committee referred to as the ‘Technical Committee’[13]
comprising of the chairman of the FIRS, all the directors of the FIRS, the
legal adviser of the FIRS, a director of the Nigerian Custom Services and three
representatives of the State Governments who shall be members of the Joint Tax
Board.[14]
However, notwithstanding the scrapped Technical
Committee, Section 40 of the VAT Act allows for the redistribution of the
revenue collected by the FIRS and its appointed collecting agents thus:
“Notwithstanding any formular that may be prescribed
by any other law, the revenue accruing by virtue of the operation of this Act
shall be distributed as follows- (a) 15% to the Federal Government; (b) 50% to
the State Government and the Federal Capital Territory, Abuja; and (c) 35% to
the Local Government: provided that the principle of derivation of not less
that 20% shall be reflected in the distribution of the allocation amongst
States and Local Governments as specified in paragraphs (b) and (c) of this
section.”
The above section to my mind, seeks to cater for the
agitations of the various State actors who might want to and have been raising
objections to the placing of the administration and collection of Value Added
Tax in the Federal Inland Revenue Service, considering the fact that VAT charged
on good and services rendered within the States may be argued, as ought to be
collected by the relevant State Internal Revenue Services.
Conflict in the Administration and Collection of VAT
While the VAT Act place in the exclusive domain of the
FIRS, the administration of value added tax in Nigeria,[15]
the Federal Inland Revenue Service Establishment Act provides in Section 25(1)
thus:
“The Service shall have power to administer all the
enactments listed in the First Schedule of this Act and any other enactment or
law on taxation in respect of which the National Assembly may confer power on
the service.”
A perusal of the First Schedule to the FIRS
Establishment Act reveals the Value Added Tax Act as one of the Acts the FIRS
is empowered to administer. In addition to this, the Taxes and Levies (Approved
List for Collection) Act provides that notwithstanding anything contained in
the Constitution of the Federal Republic of Nigeria (as amended) or in any
other enactment or law, the Federal Government shall be responsible for the
collection of Value Added Tax.[16]This
provision is a bold one as it is couched to override any conflicting provisions
of any other enactment.
Query: To what extent will this be valid where its provisions are seen to be
in conflict with that of the Constitution. Section 1(1) and (3) of the
Constitution of the Federal Republic of Nigeria provides for its supremacy:
“This Constitution is supreme and its provisions shall
have binding force on all authorities and persons throughout the Federal
Republic of Nigeria… if any other law is inconsistent with the provision of
this Constitution, this Constitution shall prevail and that other law shall to
the extent of the inconsistency be void.[17]”
This question has recently been answered by the Court
of Appeal in Uyo Local Government V. Akwa Ibom
State Government & Anor[18].
(2020) LPELR-49691 (CA) Pp. 31-36, Paras D-B where the Court of Appeal
invalidated the whole Taxes and Levies (Approved List for Collection) Act thus:
“The supremacy of the constitution is never in doubt
and section 1(3) above is to the effect that if any other law is inconsistent
with the provisions of the constitution, the constitution shall prevail and
that other law shall to the extent of its inconsistency be void. I am also of
the view that having commenced its provisions with a clause that undermines the
supremacy of the constitution, there is nothing that can operate to save any
part of that law. Thus, the virus in the introductory clause of the Act has
infested the entire Act and thereby rendering it unconstitutional.”
The outcome of the Appeal to the Supreme Court is
awaited.
There currently exists, pending and imploding
conflicts which the Courts have in recent times, taking divergent position on
with respect to: the powers of the FIRS to collect VAT on goods and services
rendered and supplied in a State; the powers of the States to enact their own
Value Added Tax or Sales Tax or Consumption Laws and the big question of the
Validity of the Value Added Tax in itself. I shall attempt to address these
issues in the light of Judicial decisions in this regard.
Divergent Positions
There seems to be a misinterpretation of the locus
classicus case of Attorney General Ogun State V. Aberuagba (1985) 1
NWLR (Pt. 3) 395. In this case, the issue in contention as slated by
Mohammed Bello JSC (as he then was) in his leading judgment, concerned the
Federal and State taxing powers having regard to the provisions of the 1999
Constitution of the Federal Republic of Nigeria. What was in issue was the
validity of the exercise of its legislative powers by the Ogun State House of
Assembly in enacting the Sales Tax Laws of 1982, which imposed a tax on the
purchase of specified goods and services and made provisions for the collection
of same. His lordship, Bello JSC (as he then was) held as follows:
“Accordingly, I hold that in so far as the Law
purports to impose sales tax on taxable products brought in the state, it offends
the provisions of inter-state or international trade and commerce and
contravenes Section 4(3) of the Constitution of the Federal Republic of
Nigeria, 1999. I declare the law unconstitutional to that extent. Furthermore,
item 61(e) empowers the Federation to control the prices of goods and
commodities. Under the Price Control Act 1977 and the Price Control
Commodities, Order 22 1979, the Federal Government has controlled the prices of
petrol, diesel oil and petroleum products. I have earlier shown that the Act
and the Order are existing laws. Since the sales tax is intended to be paid by
the consumer, it is tantamount to an increase in my view in the prices of the
taxable product, namely petrol, diesel oil and petroleum the prices of which
have been controlled by the Federal Government. That being the case, I hold the
sales tax to be inconsistent with the Price Control Act and the order made
thereunder. Consequently, the Sales Tax on petrol, diesel oil and other
petroleum products is unconstitutional, null and void. Having regard to the
following, I may summarize that the Federation has implied exclusive power to
make sales tax in all matters within the exclusive and concurrent list, while
the states have implied or residuary power to enact sales tax law on all
matters outside the said list”.
A curative look
at the above dictum will reveal that the Supreme Court in Aberuagba’s case
never said the State House of Assembly cannot make Sales Tax Laws or collect
consumption taxes, but it had to be on items not contained in the Exclusive
Legislative List and where the State enacts sales tax laws on items contained
in the Concurrent list which the National Assembly has already legislated upon,
then such a law if it contains a provision inconsistent with that of the
National Assembly, will be null and void to the extent of its inconsistency,
where there exist no inconsistency, such a law enacted by the State will become
inoperative in accordance with the doctrine of covering the field[19]
This position was reverberated in the case of A.G.
Lagos State V. Eko Hotels Ltd (2019) All FWLR Pt. 1006 Pg. 643 where
the major issues was; who was entitled between the Federal Inland Revenue
Service and the Lagos State Revenue Service, to collect from Eko Hotels Ltd. the
money due from the latter as tax on its sales to its customers, pursuant to the
provisions of the Value Added Tax Act (Decree) N0. 102 of 1993 and Sales Tax
Law Cap. 175 of Lagos State.
The supreme Court in A.G. Lagos State V. Eko Hotels
Ltd. (Supra) Was careful in restricting itself to the issues
of who is entitled to collect the money already taxed and expressly refused to
comment on the issue of the Validity of the VAT Act, since it was not an issue
before it. Per Kekere-Ekun JSC at page 675 Paras. F-A stated:
“It is necessary to reiterate here that the issue in
dispute in this case is not the constitutionality of the Sales Tax Law of Lagos
State nor the validity of the Value Added Tax Act… thus, the issue upon which
the learned trial judge predicated his judgment was the single question raised
by the plaintiff in its originating summons, to wit: “whether remittance of
money collected as tax by the plaintiff on it sales to its customers be paid to
Federal Board of Inland Revenue (1st Defendant/2nd respondent)
or Lagos State Government (2nd defendant/appellant in view of
provisions of sections 1, 2, 10, 11, 12, 13, 14, 15 and 16 of the Value Added
Tax Decree No. 102 of 1993 and Sections 1, 2, 3, 4, 5 and 6 of the Sales Tax
Law Cap. 175 and Sales Tax (Schedule Amendment) Order 2000.”
The Supreme Court in restricting itself to the issue
raised, went ahead to hold that by virtue of Section 315 of the Constitution
of the Federal Republic of Nigeria 1999 (as amended) by which the Value
Added Tax Act (an existing law) became an Act of the National Assembly, the
provisions of the VAT Act had covered the field on the goods and services
sought to be taxed at the same rate by the Lagos State Tax Law. As such, the
Lagos State Sales Tax law will be inoperative and the money collected by
Eko-Hotels from its customers be remitted to the FIRS in line with the
provisions of the Value Added Tax Act. This represents the current
position as at date.
There have also been pockets of conflicting decisions
of the Federal High Court with respect to the powers of the State to make
consumption tax laws on goods and services rendered by Hotels, Event Centers
and restaurants to their customers. While the powers of the state to make laws
regulating the activities of Hoteliers has been laid to rest by the supreme
Court in A.G. Federation V. A.G. Lagos,[20]
the issue of collection of consumption tax (a sale tax) from hotels restaurant
and event centers[21] remains
unsettled. In 2018, the Federal High Court nullified the Kano State Consumption
Tax Law on the basis that it imposed consumption tax at 5% on goods and
services which were already subject to VAT[22].
However, in 2019, the Federal High Court sitting in Lagos State in The
Registered Trustees of Hotel Owners & Managers Association of Lagos v. AG Lagos
& Anor[23]
held that based on the provisions of the 1999 Constitution and the Taxes and
Levies (Approved List for Collection) Act, the powers to impose consumption tax
was residual and within the purview of the State and further restrained the
FIRS from imposing VAT on goods and services consumed in hotels, restaurants
and event centers covered under the Hotel Occupancy and Restaurant Consumption
Laws of Lagos State. The Court relied on Part II Item 13 of the Tax and
Levies (Approved List for Collection) Act, pursuant to the provisions of the
Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment)
Order, 2015 which included Hotel, Restaurant or Event Centre Consumption
Tax as one of the Taxes and Levies to be collected by the State Government.
Query:
a. Can the Finance-Minister pursuant to powers under
Section 1(2) of the Taxes and Levies (Approved List for Collection) Act, Cap T2
LFN 2004, make an Order that seeks to render inoperative the powers conferred
on the FIRS pursuant to the VAT Act?
b. To what extent is the Validity of the Taxes and Levies
(Approved List for Collection) Act, Cap T2 LFN 2004 and the Order made thereto
in 2015, when the principal legislation itself has been held to be invalid by
the Court of Appeal in the case of Uyo Local Government V. Akwa Ibom State
Government & Anor (Supra) for being inconsistent with the provisions of
the Constitution.
These are salient issues the Courts will have to
consider in nearest future.
Validity of the VAT Act
Amidst the divergent decisions of the Federal High
Court, a particular position is of utmost interest and ought to be keenly
pursued as it has the capacity to radically change Nigeria’s VAT regime.
The Value Added Tax was imposed by Decree No. 102 of
1993 which was later assumed to have become an Act of the National Assembly by
virtue of Section 315(1)(a) of the 1999 Constitution (as amended), which made
all existing laws prior to the Constitution, with respect to which the National
Assembly is empowered to make laws on, an existing law with such modifications
as may be necessary to bring it inform with the Constitution thus:
“(1) subject to the provision of this constitution, an
existing law shall have effect with such modifications as may be necessary to
bring it into conformity with the provisions of this constitution and shall be
deemed to be-
(a) An Act of the National Assembly to the extent that it
is a law with respect to any matter on which the National Assembly is empowered
by this Constitution to make law.”
(Underline
for emphasis).
It is beyond ambiguity that for any law in existence
before the Constitution was promulgated to be an Act of the National Assembly,
it must be a law on a subject with respect to which the National Assembly is
empowered by the Constitution to make laws on.
The question then is, is Value Added Tax a subject
which the National Assembly can validly make laws on? This question was left unanswered
by the Supreme Court in the case of A.G. Lagos V. Eko Hotels Ltd (Supra)
because it was considered not to be in issue before the Court. However, the
Federal High Court has recently answered this question in the case of Ukala
V. FIRS.[24]
and Attorney General of Rivers State V. FIRS & Anor.[25]
Where the Federal High Court held that the taxing powers of the
National Assembly is limited to Item 59 of Part 1 of the Second Schedule and by
stretch, Item 7 of the Part II of the Second Schedule of the 1999 Constitution
of the Federal Republic of Nigeria 1999 (as amended), respectively. The Court
held that what the National Assembly has power to make tax laws on are:
Taxation of Incomes (company and personal), profits and capital gains and stamp
duties on documents and transactions. As such, the FIRS is not empowered to
administer Value Added Tax nor could such powers be delegated to it since Value
Added Tax is within the residual domain of the States[26].
While this may have an economic implication on the
revenue accruing to the Federal Government and other State actors, I am
inclined with the above position which goes back to question the applicability
of the doctrine of covering the field that was relied on in the A.G. Lagos
V. Eko Hotels Ltd (Supra) and has been relied on in a host of subsequent decisions
on this issue.
It is trite that an Act of the National Assembly for
the purpose of covering the field can only be said to be a “predominant
paramount” legislation if it is validly enacted or could be deemed to have been
validly enacted with respect to any matter the National Assembly is empowered by
the Constitution to make laws on.
The Supreme Court in A.G. Lagos V. Eko Hotels Ltd
(Supra) ought not to have shied away from determining the Validity of the
VAT Act and the Sales Tax Law vis-à-vis the respective powers of the National
and State Houses of Assembly under the Exclusive and Concurrent Legislative
Lists.
The Supreme Court by holding that the VAT Act had
already covered the field without first determining the validity of the VAT Act
in itself was putting the cart before the horse. It is one thing that the VAT
Act by virtue of being in existence before the 1999 Constitution qualified to
be considered to be an Existing Law under Section 315 of the Constitution, it
is another thing to consider whether the VAT Act could have been validly made
by the National Assembly giving the provisions of the Constitution.
Where one of this condition precedence is missing, an
Act no matter how beautifully worded cannot be considered to be an existing law,
not to mention being held to have covered the field. The determinant factor for
the applicability of the doctrine of covering the field is hinged on the
validity of the predominant legislation.
Conclusion
Although the Value Added Tax Act has been in existence
for about 28years, its application still remains an issue from which different
conflicts keep arising. The administration, collection and validity of the VAT
Act is still largely unsettled. Though not a new concept, it remains a gray-area
as the jurisprudence of this tax is yet to be properly developed and maximally harnessed.
Both the Federal and State Governments require revenue
to enable it fulfill its obligations to the citizenry under the social contract
theory. It will therefore, be a herculean task between the Federal Government
tax agencies and State agencies unless there is a proper delimitation of the
goods and services subject to VAT and Sales Tax respectively and the validity
of the VAT Act is resolved.
Where this is not done, taxpayers will be faced with
the burden of double taxation, continuing dilemma of the appropriate taxing
authority to file returns and remit monies deducted to and the attendant fines
and penalties in the event that such taxes have been paid to the wrong taxing
authority before these conflicts are resolved.
Recommendations.
There is therefore need for a consensus of all
stakeholders i.e. Legislature, Executive, Judiciary, FIRS and States Internal
Revenue Services. In-order to reach a lasting solution to these conflicts, I am
recommending the following:
1. An amendment of the Constitution of the Federal
Republic of Nigeria to reflect the current realities or in the alternative;
2. The FIRS Establishment Act, VATA and Taxes and Levies
(Approved List for Collection) Act be amended to make the FIRS a central record
registry alone (for filing of input and output VAT returns) only, while the
States are responsible for collecting the VAT they generate. OR;
3. VAT be abolished and replaced with Sales Tax to be
collected at the final point of sale and administered solely by the States.
[1] By: Olusegun MABAWONKU.
[2] https://www.nigerianstat.gov.ng/pdfuploads/Sectoral_Distribution_Of_Value_Added_Tax_Q3_2020.pdf https://www.proshareng.com/news/Taxes%20&%20Tariffs/N496.39bn-Generated-as-VAT-in-Q1-2021---NBS/57152
[3] Section 1:
“There is hereby imposed and charged a tax to be known as the Value Added Tax
(in this Act referred to as “the tax”) which shall be administered in
accordance with the provisions of this Act”.
[4] Section 5 of
the VAT Act (amended by Section34 of the 2019 Finance Act) provides thus:
“Section 4 of the Value Added Tax Act is amended in line 1 by substituting for
the expression, 5%, the expression, 7.5%”
[5] Section 42
of the Finance Act 2020 provides: “The tax shall be computed at the rate of
7.5% with effect from 1 February 2020, on the value of all goods and services,
except that goods and services listed under Part III of the First Schedule to
this Act shall be taxed at zero rate”.
[6] First
Schedule to the VAT Act with amendments contained in Section 47 of the Finance
Act 2019 and Section 45 of the Finance Act 2020.
[7] Goods liable
to VAT but at zero percent.
[8] Part III of
the VAT Act.
[9] Section 7 of
the VAT Act.
[10] Section 8 of
VAT Act amended by Section 35 of the Finance Act 2019 (a punishment of N50,000
for the first month in which failure to register occurs; and N25,000 for each
subsequent month in which the failure continues) and where a taxable person
permanently ceases to carry on a trade or business in Nigeria, the FIRS is to
be notified of its intention to deregister for tax purposes within 90days of
cessation of trade or business.
[11] Section 10
of VAT Act amended by Section 36 of the Finance Act 2019
[12] Section 11
of the VAT Act
[13] Section 21 –
24 of the VAT Act (now deleted by the provisions of Section 41 of the Finance
Act, 2019.
[14] Established
pursuant to Section 86(1) of Personal Income Tax Act cap. P8, LFN, 2004,
comprising of: The executive chairman of the FIRS serving as the chairman of
the JTB; One member from each state being experienced in income tax matters
nominated by the state; Representatives of Federal Road Safety Commission,
Federal Capital Territory Administration, Federal Ministry of Finance and
Federal Inland Revenue Services; a Secretary and a Legal adviser.
[15] Section 7
[16] Section (1)
Part 1
[17] Abacha V.
Fawehinmi (2000) 4 SC (Pt. II) 1 (2000) 6 NWLR (660) 228.
[18] Judgment
delivered on Friday, 22nd May, 2020
[19] The doctrine
renders the paramount legislation predominant and the subordinate legislation
remains inoperative so long as the paramount legislation remains operative.
Where there is obvious inconsistency, the subordinate legislation is void. AG.
Ogun State v. AG. Federation (1982) NSCC (Vol. 13) 1 at 35 lines 18 - 30
[20] [2013] 6 NWLR (Pt. 1380), 249 at 303
[21] Hotel
Occupancy and Restaurant Consumption Law, Cap H8, Laws of Lagos State, 2015 and
Hotel Occupancy and Restaurant Consumption (Fiscalisation) Regulation 2017
[22] Nigeria
Employers Consultative Association (NECA) & Anor. V. Attorney General of
the Federation & Two Others (Suit No: FHC/ABJ/CS/965/2017).
[23] Unreported
judgment delivered by Hon. Justice R. M. Aikawa of the FHC in Suit No.
FHC/L/CS/360/201
[24] (2021) 56
TLR 1
[25] Suit No. FHC/PH/CS/149/2020
[26] Notwithstanding
the Appeal lodged by the FIRS to the Court of Appeal, Rivers State has
proceeded to pass a Value Added Tax Law on the 19th of August, 2021.
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