‘Rivers State, Not FG Should Collect VAT’- The Judge ‘Erred’

By Akinyele Oladeji

This judgment, with respect, does not accurately capture the
intendment behind the ease in the efficacy, or in giving effect to
the otherwise black letter law in operation. It, inevitably, will
also lead to chaos in practice. The learned judge erred in the
ruling perhaps due to lack of appreciation of the background facts
and the complexities that compelled the states to cede their rights
of collection of Value Added Tax (VAT) to the Federal Government
through the instrumentality/offices of the Federal Inland Revenue
Service (FIRS) ab initio. I will explain.

Even though it is incontrovertible that VAT being a consumption
tax is in the residual list constitutionally and thus under the
line of sight and collection right of the States, however- to make
for ease of monitoring and compliance- it is not unusual for a
taxing authority to appoint another as ‘an agent’ of collection.
This is usually done for exigency, effectiveness, and efficacy of
collection. I must be quick to underscore here that I said ‘appoint
as an agent’ advisedly. This is because you cannot legally cede a
constitutionally guaranteed right but you can legally appoint an
agent to exercise that right on your behalf. When the VAT law was
introduced in Nigeria during the military era, it was soon realised
if practised (in monitoring, compliance and enforcement)
stricto senso, it will be cumbersome and visit untold
hardship on consumers, hence the MILADs ( military administrators)
agreed to appoint FIRS as an agent of collection. For simple
illustration to demonstrate the underpinning reason for this
arrangement, imagine rice cleared at the Lagos Port liable to VAT,
but offloaded and sold at Agbeni market in Ibadan, liable to OYSG
for another VAT, then the purchaser being a Hausa trader who
finally transports same to Kano to sell to final consumers in his
shop in Kano ( liable to Kano State Government for VAT) as well.
The level of inflation can only be imagined! Claiming back as input
will be cumbersome as which state will the final consumer claim
back from? The duplicity must necessarily be avoided! It is
therefore exigent and expedient for the states to appoint FIRS as
the agent of collection. And that’s why FIRS only keeps 4% of total
collection as cost of collection and distributes the balance to the
states based on agreed metrics such as population, size of IGR
etc.

Lagos State ingeniously came up with ‘Hotel Occupancy and
Consumption Tax’ to tax those goods and services that are consumed
in Lagos and cannot reasonably be said to be susceptible to any
form of movement. The 5% Tax applies to residency in hotels in
Lagos, use of event centres, and consumption in eateries and
hotels. The law was challenged in court in the case of the
Attorney-General of the Federation v. Honorable Attorney-General of
Lagos State (2013) LPELR 20974 SC vide an
originating summons taken by the Federal Government as Plaintiff
against Lagos State. The Supreme Court declared that it is only a
State House of Assembly that can make laws on tourism, licensing
and grading of hotels, restaurants, fast food outlets and other
hospitability establishments in the country and it dismissed the
case filed by the Attorney General of the Federation.

Successful examples of arrangements where one taxing authority
appoints another as agent of collection abound in Lagos- Land Use
Charge which is an aggregate a combination of Tenement rate, Ground
rent, Neighbourhood Improvement Charge. Tenement rate belongs to
the Local Governments but is collected by the State and distributed
to the Local Governments. Remember how cumbersome it used to be
when LG agents will serve you tenement rate in the morning and
State officials will harass you for ground rent in the afternoon!
Another example is Signage fees which is payable to LGs. It should
be recalled the predicament one suffered for having any kind of
logo on his/her vehicle moving from one local government to the
other. Ikeja will hold or distrain you for mobile advert and once
you drive into Oshodi, you are again liable and so on and so forth.
Lagos State Signage & Advertisement Agency (LASAA) a statutory
body, now collects and distributes amongst the local
governments.

In conclusion, the learned trial Judge, to my mind, erred by
recognizing the collection rights of Rivers State without putting
the exigencies that led to the appointment of FIRS as agent of
collection of VAT into consideration in his ruling.

Taking all the foregoing into keen consideration, I am fortified
in my view that this decision stands a good prospect of been
overturned on appeal. As to avert any possible disorder or
temporary setback in the practice as highlighted above, I am sure
that once the Federal Government files an appeal, and an
application for injunction pending appeal- in effect to restrain
the judgment from been given effect to pending the resolution of
the appeal, it will operate as an injunction to maintain status quo
antebellum.

Akinyele Oladeji B.SC, MBA, LL. B, FCTI,
FCNA
MD
CSDC CONSULTING – ENTERPRISE SOLUTIONS

By Akinyele Oladeji

This judgment, with respect, does not accurately capture the
intendment behind the ease in the efficacy, or in giving effect to
the otherwise black letter law in operation. It, inevitably, will
also lead to chaos in practice. The learned judge erred in the
ruling perhaps due to lack of appreciation of the background facts
and the complexities that compelled the states to cede their rights
of collection of Value Added Tax (VAT) to the Federal Government
through the instrumentality/offices of the Federal Inland Revenue
Service (FIRS) ab initio. I will explain.

Even though it is incontrovertible that VAT being a consumption
tax is in the residual list constitutionally and thus under the
line of sight and collection right of the States, however- to make
for ease of monitoring and compliance- it is not unusual for a
taxing authority to appoint another as ‘an agent’ of collection.
This is usually done for exigency, effectiveness, and efficacy of
collection. I must be quick to underscore here that I said ‘appoint
as an agent’ advisedly. This is because you cannot legally cede a
constitutionally guaranteed right but you can legally appoint an
agent to exercise that right on your behalf. When the VAT law was
introduced in Nigeria during the military era, it was soon realised
if practised (in monitoring, compliance and enforcement)
stricto senso, it will be cumbersome and visit untold
hardship on consumers, hence the MILADs ( military administrators)
agreed to appoint FIRS as an agent of collection. For simple
illustration to demonstrate the underpinning reason for this
arrangement, imagine rice cleared at the Lagos Port liable to VAT,
but offloaded and sold at Agbeni market in Ibadan, liable to OYSG
for another VAT, then the purchaser being a Hausa trader who
finally transports same to Kano to sell to final consumers in his
shop in Kano ( liable to Kano State Government for VAT) as well.
The level of inflation can only be imagined! Claiming back as input
will be cumbersome as which state will the final consumer claim
back from? The duplicity must necessarily be avoided! It is
therefore exigent and expedient for the states to appoint FIRS as
the agent of collection. And that’s why FIRS only keeps 4% of total
collection as cost of collection and distributes the balance to the
states based on agreed metrics such as population, size of IGR
etc.

Lagos State ingeniously came up with ‘Hotel Occupancy and
Consumption Tax’ to tax those goods and services that are consumed
in Lagos and cannot reasonably be said to be susceptible to any
form of movement. The 5% Tax applies to residency in hotels in
Lagos, use of event centres, and consumption in eateries and
hotels. The law was challenged in court in the case of the
Attorney-General of the Federation v. Honorable Attorney-General of
Lagos State (2013) LPELR 20974 SC vide an
originating summons taken by the Federal Government as Plaintiff
against Lagos State. The Supreme Court declared that it is only a
State House of Assembly that can make laws on tourism, licensing
and grading of hotels, restaurants, fast food outlets and other
hospitability establishments in the country and it dismissed the
case filed by the Attorney General of the Federation.

Successful examples of arrangements where one taxing authority
appoints another as agent of collection abound in Lagos- Land Use
Charge which is an aggregate a combination of Tenement rate, Ground
rent, Neighbourhood Improvement Charge. Tenement rate belongs to
the Local Governments but is collected by the State and distributed
to the Local Governments. Remember how cumbersome it used to be
when LG agents will serve you tenement rate in the morning and
State officials will harass you for ground rent in the afternoon!
Another example is Signage fees which is payable to LGs. It should
be recalled the predicament one suffered for having any kind of
logo on his/her vehicle moving from one local government to the
other. Ikeja will hold or distrain you for mobile advert and once
you drive into Oshodi, you are again liable and so on and so forth.
Lagos State Signage & Advertisement Agency (LASAA) a statutory
body, now collects and distributes amongst the local
governments.

In conclusion, the learned trial Judge, to my mind, erred by
recognizing the collection rights of Rivers State without putting
the exigencies that led to the appointment of FIRS as agent of
collection of VAT into consideration in his ruling.

Taking all the foregoing into keen consideration, I am fortified
in my view that this decision stands a good prospect of been
overturned on appeal. As to avert any possible disorder or
temporary setback in the practice as highlighted above, I am sure
that once the Federal Government files an appeal, and an
application for injunction pending appeal- in effect to restrain
the judgment from been given effect to pending the resolution of
the appeal, it will operate as an injunction to maintain status quo
antebellum.

Akinyele Oladeji B.SC, MBA, LL. B, FCTI,
FCNA
MD
CSDC CONSULTING – ENTERPRISE SOLUTIONS