The Enforceability Of The Lagos State Consumption Tax Law In The Light Of Extant Judicial Decisions

By Agbada S. Agbada

In a Public Notice recently issued by the Lagos State Internal
Revenue Service (“LIRS”) to clarify the definitions of hotels,
event centres and restaurants in Section 17 of the Hotel Occupancy
and Restaurant Consumption Law, 2009, (“Consumption Tax Law” or the
“Law”), the LIRS mandated the managements of these facilities to
charge consumption tax on their bills and invoices and remit the
tax to the LIRS on or before the 20^th day of each
calendar month in a format prescribed by section 6 of the Law. The
LIRS in the said Notice also reiterated its intention to commence
enforcement of the Law by imposing prescribed sanctions for
non-compliance with the Law. In this article, we examine the
validity and enforceability of the Consumption Tax Law in the light
of judicial decisions on the point.

The powers of the different tiers of government in Nigeria to
impose tax is derived from the Constitution of the Federal Republic
of Nigeria, 1999 (as emended) (the “Constitution”) and are
delineated by the Taxes and Levies (Approved List for Collection)
Act, Cap. T2, Laws of the Federation of Nigeria, 2004 (the “Taxes
and Levies Act”). The validity of any tax will therefore depend on
whether the power to impose the tax is traceable to the
Constitution and the Taxes and Levies Act.

Pursuant to its powers under the Exclusive and Current
Legislative Lists of the Constitution[1], the
National Assembly enacted the Taxes and Levies Act which, in its
Schedule prescribes the taxes that are collectible by the different
tiers of government. By Section 1(2) of the Act, the Minister of
Finance is empowered to amend the Schedule to the Act and in
exercise of this power, the Minister of Finance, by Order titled
Taxes and Levies (Approve List of Collection) Amendment Order dated
26 May 2015 (the “Amendment Order”) amended the Schedule to the Act
to include Hotel, Restaurant or Event Centre Consumption Tax as one
of the taxes that are within the powers of the State Governments to
impose and collect. This seems to provide a legal framework for the
imposition of consumption tax by States. Subsequent to the
Amendment Order, the Government of Lagos State issued the Hotel
Occupancy and Restaurant Consumption (Fiscalization) Regulations
2017 (the “Regulations”).

Prior to the enactment of the Amendment Order which expressly
placed Hotel, Restaurant or Event Centre Consumption Tax under the
powers of the States, the powers of the States to impose the tax
had been a subject of controversy and the Minister may have sought
to settle the controversy by clarifying the powers of the States to
impose the tax by the Order. However, it turned out that the
Amendment Order rather than settle the controversy, is now part of
the controversy.

So far, there have been several judgments bothering on the
validity of the efforts of the Lagos State Government to impose and
collect tax on goods supplied and consumed in hotels in the State,
but the controversy is far from been resolved.

In AG Lagos State v. Eko Hotels Ltd & Anor (2017)
LPELR-43713(SC)., the Supreme Court held that:

• the sales tax imposed by the Government of Lagos State under
  the Sales Tax Law Cap.175 Laws of Lagos State 1995 and Sales Tax
  Amendment Order 2000) was akin to Value Added Tax;
• the Value Added Tax Act (“VAT Act”) has covered the field and
  the Sales Tax Law cannot be enforced side by side with the VAT Act;
  and
• that the administration of the Sales Tax Law and the VAT Act
  will result in double taxation. In effect, the Supreme Court held
  that as long as the VAT Act is in force, the Sales Tax Law was
  unenforceable. The Court however did not pronounce on the validity
  of the Sales Tax Law because the validity of the Law was not an
  issue before the Court.

It is important to note that the taxes imposed under the Sales
Tax Law and the Consumption Tax Law are the same in nature and
content. The taxes only differ in nomenclature and scope.
Therefore, the above judgment will apply equally to both sales tax
and consumption tax.

However, in The Registered Trustees of Hotel Owners and
Managers Association of Lagos (suing for itself and on behalf of
all its members) v Attorney-General of Lagos State & Federal Inland
Revenue Service,[2] the Federal High
Court, per Aikawa J. held that the consumption tax imposed and
chargeable on goods and services supplied or consumed in hotels,
restaurants and event centres within  Lagos State is valid and
enforceable and that the VAT Act which imposes VAT on all
non-exempt goods and services in Nigeria is inapplicable to goods
and services supplied by or in hotels, restaurants and events
centres in Lagos State. In this case, the Plaintiffs claimed the
following reliefs from the Court:

1. That the VAT Act has covered the field in respect of
   consumption tax on all goods and services supplied in Nigeria;
2. That the Hotel Occupancy and Restaurant Consumption
   (Fiscalization) Regulations 2017, made pursuant to the Hotel
   Occupancy and Restaurant Consumption Law of Lagos State (the
   “Lagos Consumption Law”) is inapplicable to the
   Plaintiffs;
3. That the FIRS is the only lawful and competent agency vested
   with constitutional powers to assess and collect consumption tax in
   respect of goods and services supplied in Nigeria.[3]

In dismissing the suit, the Court held that consumption tax is
within the Residual Legislative List of the Constitution and
therefore within the legislative competence of the States and by
virtue of Section 4(7) of the Constitution, the Taxes and Levies
Act and the Taxes and Levies Amendment Order, the Government of
Lagos State is the only lawful authority to impose and collect
consumption tax on goods and services supplied and consumed in
hotels, restaurants and event centres in Lagos State.

This decision, in our opinion, is questionable in several
respects. First, it is in direct conflict with the decision of the
Supreme Court in AG Lagos State v. Eko Hotels Ltd &
Anor (supra) where the Court expressly held that the VAT
Act has covered the field and that the Lagos State Consumption Tax
Law cannot be enforced simultaneously with the VAT Act. Secondly,
the reasoning of the Court that consumption tax is a residual
matter and within the legislative competence of the Government of
Lagos State also runs against the mill of judicial precedent. In
MTN Communications Nigeria Limited v. The Abia State
Government & Ors (2019) LPELR-46652(CA), the Court of
Appeal held that the powers of the different tiers of government to
impose tax have been circumscribed by the Constitution and the
Taxes and Levies Act and that a State cannot impose any tax which
has not been provided for in the Taxes and Levies Act. The Abia
State of Nigeria Infrastructural Development Fund Law of 2010 was
therefore declared null and void to the extent of its inconsistency
with the Taxes and Levies Act.

However, notwithstanding the merits of the judgment, the
judgment is binding until set aside. We understand that the
judgment has been appealed by the FIRS. But pending a determination
of the Court of Appeal in favour of FIRS, the judgment remains
valid. The decision may have therefore settled the controversy on
the validity of consumption tax, albeit temporarily.

But the Federal High Court has added a new twist to the
confusion in The Registered Trustees of Hotel Owners and
Managers Association of Lagos (suing for itself and on behalf of
all its members) v Attorney-General of the Federation and the
Minister of Finance.[4] The Federal High
Court, per Faji J. held in this case that: (i) amendment of
legislation is a law making power that is exclusively reserved for
the Legislature by the Constitution; (ii) the Taxes and Levies Act
which empowers the Minister of Finance to amend the Schedule to the
Act is inconsistent with the Constitution and it is void to the
extent of the inconsistency and (iii) the Amendment Order which was
issued in furtherance of the Taxes and Levies Act is void. This
judgment has in effect voided the hotel, restaurant and event
centre tax and all other taxes that were introduced by the
Amendment Order.

We observe that the cases of The Registered Trustees of
Hotel Owners and Managers Association of Lagos (suing for itself
and on behalf of all its members) v Attorney-General of the
Federation and the Minister of Finance and The
Registered Trustees of Hotel Owners and Managers Association of
Lagos (suing for itself and on behalf of all its members) v
Attorney-General of Lagos State & Federal Inland Revenue
Service are not on the same issues. While the earlier case
was on the validity and enforceability of the Consumption Tax Law
and the Regulations, the latter case was in respect of the
constitutionality of section 1(2) of the taxes and Levies Act and
the Amendment Order that was made pursuant to the Act.
Nevertheless, the Judgment of Faji J. in the latter case has a
direct bearing on the validity of the Consumption Tax Law and the
Regulations. It is noteworthy that one of the grounds on which
Aikawa J. upheld the validity of the Consumption Tax Law and the
Regulations was that the Government of Lagos State was empowered to
impose and collect the tax by virtue of the Amendment Order. The
nullification of the Amendment Order therefore takes out one of the
sources of validity of the Consumption Tax Law and the Regulations.
To that extent, the decision conflicts with the judgment of Aikawa
J. which upheld the validity of the Consumption Tax Law and the
Regulations. But what is the implication of this conflict?

The law is settled that where there are two conflicting
decisions of courts of co-ordinate jurisdiction, the latter
decision prevails. This position was reiterated by the Court of
Appeal in Ansa v. R.T.P.C.N. (2008) 7 NWLR (Pt.1086) 421 at
442-443, paras. H-A (CA) where the Court, per Omokri, JCA
held that “where there are conflicting judgments of courts of
equal jurisdiction over a subject matter in dispute, the rule is
that the decision that is later in time operates as a bar and it
represents the correct position of the law.” Therefore, the
judgment of Faji J., to the extant that it declares the Amendment
Order which empowers the States to impose and collect consumption
tax void represents the current position of the law and overrides
the judgment of Aikawa J. which upheld the Consumption Tax Law and
the Regulations on the basis of the Amendment Order.

But the Consumption Tax Law was not upheld by Aikawa J. solely
on the basis of the Amendment Order, but also on the Constitution.
The Court reasoned that since consumption tax is neither in the
Exclusive nor Concurrent List, it is in the Residual List and
therefore within the legislative remit of the States. Even though
this reasoning and conclusion does not conform with precedent, it
remains valid until set aside. To that extent, it serves as a
thread that could sustain the judgment, notwithstanding the latter
judgment of Faji J. until set aside by the Court of Appeal or the
Supreme Court.

But can the LIRS proceed with enforcement of the tax pending the
determination of the appeal against the judgment of Aikawa J.?

As a general rule, an appeal does not operate as a stay of
execution.[5] The Supreme Court has however held
that the rule does not give any licence, directly or indirectly,
for the issue and execution of any processes which may ultimately
be offensive and that reliance on the rule to issue any inopportune
execution will amount to an abuse of court process.[6] We note that the judgment in question is
declaratory and cannot be executed. The note of caution by the
Supreme Court will however apply equally to declaratory judgments
and it may be inappropriate for any party to take any steps on the
basis of a judgment on appeal, pending the determination of the
appeal.

On that note, the bid by the LIRS to commence enforcement of the
consumption tax pending the determination of the appeal against the
judgment of Aikawa J. upholding the validity of the Consumption Tax
Law and the Regulations may be ill-timed and hasty. The best course
is for the LIRS to stay any enforcement until a decision on appeal
is delivered. To stimy the attempted premature enforcement, the
FIRS may file an application for junction pending appeal (if none
has been filed) to expressly restrain the LIRS from implementing or
enforcing the Consumption Tax Law and the Regulations pending the
determination of the appeal.

Written By Agbada S. Agbada, Associate,
Streamsowers & Kohn,
agbada@sskohn.com

It is our hope that the Court of Appeal will clear the fog
around the validity of consumption tax.

[1] See Item 59 of the Exclusive List and Item 7 of
the Concurrent List.

[2] Unreported judgment delivered by Hon. Justice R.
M. Aikawa of the FHC on October 3, 2019 in Suit No:
FHC/L/CS/360/2018.

[3] Curled from Banwo and Ighodalo, “Validity of
Consumption Taxes Imposed by State Governments in Nigeria: Has the
Federal High Court Decision in Hotel Owners Case Settled the
Controversy?”
https://www.banwo-ighodalo.com/grey-matter/validity-consumption-taxes-imposed-state-governments-nigeria-federal-high-court-settled-controversy.

[4] Suit No. FHC/L/CS/1082/2019 (Unreported).

[5] See Josiah Cornelius Ltd & Ors v. Ezenwa (1996)
LPELR-1632(SC).

[6] Mohammed v. Olawunmi & Ors (1993)
LPELR-1898(SC).

By Agbada S. Agbada

In a Public Notice recently issued by the Lagos State Internal
Revenue Service (“LIRS”) to clarify the definitions of hotels,
event centres and restaurants in Section 17 of the Hotel Occupancy
and Restaurant Consumption Law, 2009, (“Consumption Tax Law” or the
“Law”), the LIRS mandated the managements of these facilities to
charge consumption tax on their bills and invoices and remit the
tax to the LIRS on or before the 20^th day of each
calendar month in a format prescribed by section 6 of the Law. The
LIRS in the said Notice also reiterated its intention to commence
enforcement of the Law by imposing prescribed sanctions for
non-compliance with the Law. In this article, we examine the
validity and enforceability of the Consumption Tax Law in the light
of judicial decisions on the point.

The powers of the different tiers of government in Nigeria to
impose tax is derived from the Constitution of the Federal Republic
of Nigeria, 1999 (as emended) (the “Constitution”) and are
delineated by the Taxes and Levies (Approved List for Collection)
Act, Cap. T2, Laws of the Federation of Nigeria, 2004 (the “Taxes
and Levies Act”). The validity of any tax will therefore depend on
whether the power to impose the tax is traceable to the
Constitution and the Taxes and Levies Act.

Pursuant to its powers under the Exclusive and Current
Legislative Lists of the Constitution[1], the
National Assembly enacted the Taxes and Levies Act which, in its
Schedule prescribes the taxes that are collectible by the different
tiers of government. By Section 1(2) of the Act, the Minister of
Finance is empowered to amend the Schedule to the Act and in
exercise of this power, the Minister of Finance, by Order titled
Taxes and Levies (Approve List of Collection) Amendment Order dated
26 May 2015 (the “Amendment Order”) amended the Schedule to the Act
to include Hotel, Restaurant or Event Centre Consumption Tax as one
of the taxes that are within the powers of the State Governments to
impose and collect. This seems to provide a legal framework for the
imposition of consumption tax by States. Subsequent to the
Amendment Order, the Government of Lagos State issued the Hotel
Occupancy and Restaurant Consumption (Fiscalization) Regulations
2017 (the “Regulations”).

Prior to the enactment of the Amendment Order which expressly
placed Hotel, Restaurant or Event Centre Consumption Tax under the
powers of the States, the powers of the States to impose the tax
had been a subject of controversy and the Minister may have sought
to settle the controversy by clarifying the powers of the States to
impose the tax by the Order. However, it turned out that the
Amendment Order rather than settle the controversy, is now part of
the controversy.

So far, there have been several judgments bothering on the
validity of the efforts of the Lagos State Government to impose and
collect tax on goods supplied and consumed in hotels in the State,
but the controversy is far from been resolved.

In AG Lagos State v. Eko Hotels Ltd & Anor (2017)
LPELR-43713(SC)., the Supreme Court held that:

• the sales tax imposed by the Government of Lagos State under
  the Sales Tax Law Cap.175 Laws of Lagos State 1995 and Sales Tax
  Amendment Order 2000) was akin to Value Added Tax;
• the Value Added Tax Act (“VAT Act”) has covered the field and
  the Sales Tax Law cannot be enforced side by side with the VAT Act;
  and
• that the administration of the Sales Tax Law and the VAT Act
  will result in double taxation. In effect, the Supreme Court held
  that as long as the VAT Act is in force, the Sales Tax Law was
  unenforceable. The Court however did not pronounce on the validity
  of the Sales Tax Law because the validity of the Law was not an
  issue before the Court.

It is important to note that the taxes imposed under the Sales
Tax Law and the Consumption Tax Law are the same in nature and
content. The taxes only differ in nomenclature and scope.
Therefore, the above judgment will apply equally to both sales tax
and consumption tax.

However, in The Registered Trustees of Hotel Owners and
Managers Association of Lagos (suing for itself and on behalf of
all its members) v Attorney-General of Lagos State & Federal Inland
Revenue Service,[2] the Federal High
Court, per Aikawa J. held that the consumption tax imposed and
chargeable on goods and services supplied or consumed in hotels,
restaurants and event centres within  Lagos State is valid and
enforceable and that the VAT Act which imposes VAT on all
non-exempt goods and services in Nigeria is inapplicable to goods
and services supplied by or in hotels, restaurants and events
centres in Lagos State. In this case, the Plaintiffs claimed the
following reliefs from the Court:

1. That the VAT Act has covered the field in respect of
   consumption tax on all goods and services supplied in Nigeria;
2. That the Hotel Occupancy and Restaurant Consumption
   (Fiscalization) Regulations 2017, made pursuant to the Hotel
   Occupancy and Restaurant Consumption Law of Lagos State (the
   “Lagos Consumption Law”) is inapplicable to the
   Plaintiffs;
3. That the FIRS is the only lawful and competent agency vested
   with constitutional powers to assess and collect consumption tax in
   respect of goods and services supplied in Nigeria.[3]

In dismissing the suit, the Court held that consumption tax is
within the Residual Legislative List of the Constitution and
therefore within the legislative competence of the States and by
virtue of Section 4(7) of the Constitution, the Taxes and Levies
Act and the Taxes and Levies Amendment Order, the Government of
Lagos State is the only lawful authority to impose and collect
consumption tax on goods and services supplied and consumed in
hotels, restaurants and event centres in Lagos State.

This decision, in our opinion, is questionable in several
respects. First, it is in direct conflict with the decision of the
Supreme Court in AG Lagos State v. Eko Hotels Ltd &
Anor (supra) where the Court expressly held that the VAT
Act has covered the field and that the Lagos State Consumption Tax
Law cannot be enforced simultaneously with the VAT Act. Secondly,
the reasoning of the Court that consumption tax is a residual
matter and within the legislative competence of the Government of
Lagos State also runs against the mill of judicial precedent. In
MTN Communications Nigeria Limited v. The Abia State
Government & Ors (2019) LPELR-46652(CA), the Court of
Appeal held that the powers of the different tiers of government to
impose tax have been circumscribed by the Constitution and the
Taxes and Levies Act and that a State cannot impose any tax which
has not been provided for in the Taxes and Levies Act. The Abia
State of Nigeria Infrastructural Development Fund Law of 2010 was
therefore declared null and void to the extent of its inconsistency
with the Taxes and Levies Act.

However, notwithstanding the merits of the judgment, the
judgment is binding until set aside. We understand that the
judgment has been appealed by the FIRS. But pending a determination
of the Court of Appeal in favour of FIRS, the judgment remains
valid. The decision may have therefore settled the controversy on
the validity of consumption tax, albeit temporarily.

But the Federal High Court has added a new twist to the
confusion in The Registered Trustees of Hotel Owners and
Managers Association of Lagos (suing for itself and on behalf of
all its members) v Attorney-General of the Federation and the
Minister of Finance.[4] The Federal High
Court, per Faji J. held in this case that: (i) amendment of
legislation is a law making power that is exclusively reserved for
the Legislature by the Constitution; (ii) the Taxes and Levies Act
which empowers the Minister of Finance to amend the Schedule to the
Act is inconsistent with the Constitution and it is void to the
extent of the inconsistency and (iii) the Amendment Order which was
issued in furtherance of the Taxes and Levies Act is void. This
judgment has in effect voided the hotel, restaurant and event
centre tax and all other taxes that were introduced by the
Amendment Order.

We observe that the cases of The Registered Trustees of
Hotel Owners and Managers Association of Lagos (suing for itself
and on behalf of all its members) v Attorney-General of the
Federation and the Minister of Finance and The
Registered Trustees of Hotel Owners and Managers Association of
Lagos (suing for itself and on behalf of all its members) v
Attorney-General of Lagos State & Federal Inland Revenue
Service are not on the same issues. While the earlier case
was on the validity and enforceability of the Consumption Tax Law
and the Regulations, the latter case was in respect of the
constitutionality of section 1(2) of the taxes and Levies Act and
the Amendment Order that was made pursuant to the Act.
Nevertheless, the Judgment of Faji J. in the latter case has a
direct bearing on the validity of the Consumption Tax Law and the
Regulations. It is noteworthy that one of the grounds on which
Aikawa J. upheld the validity of the Consumption Tax Law and the
Regulations was that the Government of Lagos State was empowered to
impose and collect the tax by virtue of the Amendment Order. The
nullification of the Amendment Order therefore takes out one of the
sources of validity of the Consumption Tax Law and the Regulations.
To that extent, the decision conflicts with the judgment of Aikawa
J. which upheld the validity of the Consumption Tax Law and the
Regulations. But what is the implication of this conflict?

The law is settled that where there are two conflicting
decisions of courts of co-ordinate jurisdiction, the latter
decision prevails. This position was reiterated by the Court of
Appeal in Ansa v. R.T.P.C.N. (2008) 7 NWLR (Pt.1086) 421 at
442-443, paras. H-A (CA) where the Court, per Omokri, JCA
held that “where there are conflicting judgments of courts of
equal jurisdiction over a subject matter in dispute, the rule is
that the decision that is later in time operates as a bar and it
represents the correct position of the law.” Therefore, the
judgment of Faji J., to the extant that it declares the Amendment
Order which empowers the States to impose and collect consumption
tax void represents the current position of the law and overrides
the judgment of Aikawa J. which upheld the Consumption Tax Law and
the Regulations on the basis of the Amendment Order.

But the Consumption Tax Law was not upheld by Aikawa J. solely
on the basis of the Amendment Order, but also on the Constitution.
The Court reasoned that since consumption tax is neither in the
Exclusive nor Concurrent List, it is in the Residual List and
therefore within the legislative remit of the States. Even though
this reasoning and conclusion does not conform with precedent, it
remains valid until set aside. To that extent, it serves as a
thread that could sustain the judgment, notwithstanding the latter
judgment of Faji J. until set aside by the Court of Appeal or the
Supreme Court.

But can the LIRS proceed with enforcement of the tax pending the
determination of the appeal against the judgment of Aikawa J.?

As a general rule, an appeal does not operate as a stay of
execution.[5] The Supreme Court has however
held that the rule does not give any licence, directly or
indirectly, for the issue and execution of any processes which may
ultimately be offensive and that reliance on the rule to issue any
inopportune execution will amount to an abuse of court
process.[6] We note that the judgment in
question is declaratory and cannot be executed. The note of caution
by the Supreme Court will however apply equally to declaratory
judgments and it may be inappropriate for any party to take any
steps on the basis of a judgment on appeal, pending the
determination of the appeal.

On that note, the bid by the LIRS to commence enforcement of the
consumption tax pending the determination of the appeal against the
judgment of Aikawa J. upholding the validity of the Consumption Tax
Law and the Regulations may be ill-timed and hasty. The best course
is for the LIRS to stay any enforcement until a decision on appeal
is delivered. To stimy the attempted premature enforcement, the
FIRS may file an application for junction pending appeal (if none
has been filed) to expressly restrain the LIRS from implementing or
enforcing the Consumption Tax Law and the Regulations pending the
determination of the appeal.

Written By Agbada S. Agbada, Associate,
Streamsowers & Kohn,
agbada@sskohn.com

It is our hope that the Court of Appeal will clear the fog
around the validity of consumption tax.

[1] See Item 59 of the Exclusive List and Item
7 of the Concurrent List.

[2] Unreported judgment delivered by Hon.
Justice R. M. Aikawa of the FHC on October 3, 2019 in Suit No:
FHC/L/CS/360/2018.

[3] Curled from Banwo and Ighodalo,
“Validity of Consumption Taxes Imposed by State Governments in
Nigeria: Has the Federal High Court Decision in Hotel Owners Case
Settled the Controversy?”
https://www.banwo-ighodalo.com/grey-matter/validity-consumption-taxes-imposed-state-governments-nigeria-federal-high-court-settled-controversy.

[4] Suit No. FHC/L/CS/1082/2019
(Unreported).

[5] See Josiah Cornelius Ltd & Ors v. Ezenwa
(1996) LPELR-1632(SC).

[6] Mohammed v. Olawunmi & Ors (1993)
LPELR-1898(SC).