The Lingering Legal Tussles Between The Federal Government Of Nigeria And The State Governments Over Vat: The Way Forward.

By Stefan Onome Okorodudu

1.0       Value Added Tax
and Its Nature in Brief

 Value Added Tax (VAT) is a consumption
tax, it is a tax on spending, borne by the final consumer of goods
and services, because it is included in the price paid. 
Although, the VAT element is to be separately indicated in the tax
invoice, which will be either VAT inclusive or VAT exclusive[1].

Since VAT is a consumption tax, it is relatively easier to
administer and difficult to evade[2]. That is, as
you have thirst, you spend or consume to satisfy that thirst. Same
way you can’t evade your thirst, is same way you can’t evade VAT,
all things been equal.  The tax is also easier to administer
because of the chain of input/output provision. Which ensures that
where a producer of goods or services, purchase raw materials to
produce the said goods, he pays input and collect output VAT when
selling his finished products to the final consumer. This is made
possible by the VAT Act, refund provision, which provides thus:

(1) “A taxable person shall pay to the supplier the tax on
taxable goods and services purchased by or supplied to
him.

(2) The tax paid by a taxable person under subsection (1) of
this section shall be known as input tax.”[3]

(1) “A taxable person shall on supplying taxable goods or
services to his accredited distributor, agent, client or consumer,
as the case may be, collect the tax on those goods or services at
the rate specified in section 2 of this Act. (2) The tax collected
by a taxable person under subsection (1) of this section shall be
known as output tax.”[4]

Be that as it may, the yield from VAT is a fairly accurate
measurement of the growth of an economy, since purchasing power of
the currency in use increases with economic growth. VAT is a
self-assessment tax that is paid when returns are rendered.

1.1       Introductory
Background

Before now, what existed as a consumption of goods and services
tax was the Sales Tax, which was introduced into the Nigeria tax
system by the Sales Tax Decree No. 7, 1986. With the quest to
improve revenue generation in Nigeria, the Value Added Tax (VAT)
was introduced into the corpus of Nigeria tax regime by virtue of
the VAT Decree No. 102, 1993. This said Sales Tax and VAT are
basically same tax, except that the operation of VAT has a larger
tax base than sales tax.

Pursuant to the Nigeria constitution[5], the
referred VAT Decree No. 102 transited into a valid law in Nigeria
and later became the VAT Act, Cap. V1, LFN, 2004 (as amended by the
Finance Act, 2020). Though, in respect of the same VAT, the tax is
currently administered and collected in Nigeria by the Federal
Inland Revenue Service, pursuant to the Federal Inland Revenue
Service Act[6] and the Taxes and Levies (Approved
List for Collection) Act[7]

VAT, being partly a tax on consumption of goods/services which
emanates from importation of goods/ services (imported VAT), the
Federal Government through the FIRS/Custom Service, is a
stakeholder. For also being tax on consumption of goods and
services, which emerges from the internal economic transactions of
the various federating units, the various states are
stakeholders.[8]

This being the case, it is expected that there would be Federal
and State contention over who should administer and collect VAT in
Nigeria. Knowing that the incidence of this tax cuts across the
federating states, as well as the borders over which the Federal
Government has jurisdiction. This led to the policy where a central
VAT regime to be administered by the Federal Government is put in
place, and the revenue generated is shared among the three tiers of
government, pursuant to the VAT Act, 2004[9]( as
amended in 2020). This is so because, if the states and the Federal
Government are allowed to collect their individual VAT or Purchase
Taxes on consumption of goods and services, such goods or services
will suffer endless double taxations as the goods/ services move
around the federation. This contention for the authority over VAT
or Purchase Tax or Sales Tax was envisaged in the 1960s. This was
why under the 1960 and 1963 constitution of the Federal Republic of
Nigeria, sales tax as replaced by VAT was provided for under the
then item 38 of the exclusive legislative list. Meaning that it was
clear under the 1960 and the 1963 constitution that the Federal
Government to the exclusion of other tiers of government, was
constitutionally empowered to make laws over Sales Tax, administer
and collect same.

1.2 Birth of The Lingering Legal Tussle Between the
Federal Government and The States

The genesis of this unending legal tussle started by the
omission of VAT (which came to replace Sales Tax) from the
exclusive legislative list under the 1979 and the current 1999
constitution as amended. Unlike what it was under the said 1960 and
1963 constitution.

Expectedly, this said omission has led to the unending legal
battles between the Federal and State Governments over the question
of who should administer and collect VAT in Nigeria. Coupled with
the current scamper for state internally generated revenue; as well
as the anxiety to improve federal or national revenue, because of
the global decline in crude oil prices.[10]

Instances of such cases are the A.G., Ogun State v.
Alhaja Ayinke Aberuagba & 7 Ors[11],
A.G., Lagos State v. A.G., Federation & 35 Ors[12], Nigeria Employers
Consultative Association (NECA) & Anor v. A.G., Federation & Two
Ors, and Emmanuel Chukwuka Ukala V FIRS[13]

Under the case of AG, Ogun State v. Alhaja Ayinke Aberuagba
& 7 Ors[14] the Supreme Court held
thus:

When all the relevant provisions of the Constitution are
read together, it is obvious that the trade and commerce power
conferred on the federal government in item 61 of the Exclusive
List is limited. The words “in particular” in that provision are
words of limitation, not of emphasis. International and inter-state
trade and commerce are reserved for the Federal Government while
intra-state trade and commerce is left for the States. Indeed, all
the tiers of government (i.e., Federal, State and Local) have been
accorded their respective shares of trade and commerce
power.

Under the AG Lagos State v. AG Federation & 35
Ors[15] Uwaifo JSC established that:

Once it is established that the power of making laws is
reserved exclusively by the Constitution for the States under their
residual power, the Federal Government cannot be allowed to enact
any Act or make any regulation under any Act in any guise in
competition with any State in respect thereof no matter the
salutary nature of such a law. The court must so decide in an
appropriate case.

Under the Nigeria Employers Consultative Association (NECA)
& Anor v. A.G., Federation & Two Ors, – the Kano State
Consumption Tax Law was nullified on the basis that it imposed
consumption tax at 5% on goods and services which were already
subject to VAT

While in the case of Emmanuel Chukwuka Ukala v.
FIRS[16], yet
another judgment delivered on 11th December 2020, where the Federal
High Court (FHC) held that the powers of the National Assembly to
make laws imposing taxes is limited to the profits/income of
persons/companies, capital gains and stamp duties on instruments
but does not extend to VAT.

As this age long legal fracas between the Federal Government and
the State Governments continued to linger, another one got
triggered on the 9^th day of August 2021. Which is the
A.G., River State v. FIRS/ AG Federation Suit.[17]

1.3 Court Jurisdiction

Within the context of jurisdiction, the Supreme Court judicial
precedent on VAT involving AG Lagos State v. AG federation is
relevant. Here, it was held by the Supreme Court that only Federal
High Court has original jurisdiction to entertain suits relating to
federal revenues and not the Supreme Court. In which case, the
Federal High Court that sat in Rivers State had jurisdiction.
Suggesting that the issue of jurisdiction is relatively silent,
even though it can become an issue if we bring the Jurisdiction of
the Tax Appeal Tribunal and that of the Supreme Court to the
fore.

However, by virtue of the ratios of the cases above: It becomes
clear from the first mentioned suit, to the last of them that the
courts had never being consistent in their positions on the
question of which of the tiers of government should administer and
collect VAT in Nigeria. This is because there is no adequate or
clear legislation in Nigeria on which tier of government should
have power over VAT. Meaning that the Federal and State
Governments are seeking for judicial solutions where only adequate
legislative solution is needed. That is why we find
court decisions everywhere, yet none is bringing the legal tussle
to a conclusive end.

Just like setting the Nigeria VAT regime in disarray, you find
one competent court deciding that the Federal Government can
administer VAT within the context of international trade and
commerce pursuant to item 62, Part 1, 2^nd Schedule of
the 1999 constitution as amended. While the states can administer
Sales Tax within their respective states.

In another suit, you find a competent court once more, deciding
that by virtue of the same item 62, the Federal Government has
covered the field, as such the State Governments cannot administer
sales or consumption taxes within their respective states, neither
can they validly legislate on same.

Yet in another context, like the Rivers State or Ukala’s case,
you find the court deciding that the mentioning of international
trade /commerce under item 62 of the constitution does not amount
to the power of the Federal Government to administer or have power
over VAT. Since VAT was not specifically mentioned under item 62,
like Stamp Duty and Income Taxes are specifically mentioned under
items 58 and 59 of the exclusive legislative lists. Which implies
that the none mention of VAT in the exclusive or concurrent list,
amounted to it total exclusion from the powers of the Federal
Government. As a result, becomes a residual matter that only the
states can legislate upon.

It is almost certain that whatever position the Supreme Court
takes over the Rivers State and the Federal Government VAT suit, it
will not operate to put an end to this tussle, until the
federal/state stakeholders settle it via a legislation.

I mean, there is no knowing as to the conclusive end of the
question on who should have authority over VAT, purchase tax or
sales tax in Nigeria. Should the country continue to
seek judicial interpretation where there is no adequate legislation
for which interpretation should be given? Is it not clear that this
continuous litigation over VAT militate against the volume of
revenue that could be generated from VAT, if same is administered
by a definite authority without distractions?

A careful look at item 62, part 1, second schedule of the 1999
constitution (as amended) and the dictions of trade/commerce.
 It shows that there is no specific mention of VAT like Stamp
Duty was mentioned under Item 58 or like Income Tax was mentioned
under item 59.

This suggest that if the court decides, (without being under the
influence of public policy) which tier of government has the
authority to administer VAT, it should be the State government.
The principle being that when a court is invited to
interpret taxation or revenue laws, (the constitution or statutes)
they are expected to interpret them literally and strictly without
inferences or additions[18].
 For based on the said principle, the question will be whether
VAT was primarily mentioned under the constitution or not, which is
simply no.

2.0 Conclusion

-The scenario in entirety portrays that the reasons for which
the Federal Government has been allowed to administer/collect VAT
on behalf of the states is the fact that it is convenient.

-That it will aid easy redistribution of revenue or wealth among
the various states, not minding the volume of state’s contribution
to the generation of VAT revenue.

-That it will check double taxation of goods and services around
the federation, to check further inflation on prices of goods and
services.

-It is trite that pursuant to Section 3, 7 and 25 of the FIRS
Act, 2007 (as amended) the FIRS administers VAT being the Federal
Inland Revenue Service and makes VAT policies through the FIRS
Board without an adequate presence of the State Internal Revenue
Service

As the first to the third conclusions above are not laws, it
becomes pertinent for the Federal Government and the federating
units to harmonize the entire consumption taxes and birth a
holistic VAT legislation.

More-so that section 162 (1) (2) of the 1999 constitution, which
provided for derivation principle in Nigeria, disappointingly, did
not include taxation revenue under the derivation allocation
provision. Consequently, State Governments have no option but to
contend over the rights to administer VAT within their respective
states.  Because it only demonstrate injustice, that they will
be receiving shares of VAT revenue not in accordance with the
volume of VAT revenue generated from their states.  This being
the case, states like Lagos State, Rivers State, Kano State, where
the bulk of the VAT transactions emanate from, cannot stand, and
watch VAT revenue largely generated from their states to be shared
equally among non-VAT viable states pursuant to section 40 of the
VAT Act.

This necessitate the need to proffer steps to be taken by the
Federal Government in conjunction with the State Governments over
VAT[19]. Instead of seeking judicial
interpretation where there is no adequate Sales Tax, Purchase Tax
or VAT provision under the 1999 constitution as amended.

3.0 The Way Forward on The Lingering Contention Between
the Federal Government and The State Governments Over
VAT

Value Added Tax revenue is not one natural resource like gold or
crude oil that is mainly concentrated in one segment of the
federation, so that we jump on the bandwagon to agitate that under
the principle of true federalism, state with such resource should
be allowed to control them. No, VAT revenue is one revenue that
even the Federal Capital Territory contributes to it
generation.[20]  As a result, it is
always fashionable for the federating states to allow or permit the
Federal Government to administer VAT on behalf of the states, as it
has been successfully practiced in Canada[21].
However, states must strive to have justice reflected in the
distribution of VAT revenue among the states.

For If one gets too hasty, the temptation will be to suggest
that each state should be allowed to administer their respective
VAT. But the reality that goods and services will go round various
states before they are finally consumed, is a globally recognized
yardstick when considering which tier of government should
administer VAT. Since allowing each state to tax the consumption of
goods/ services within their states, will irresistibly occasion
double taxation, which will in turn breed inflation on the prices
of goods/services, as one of the practical effects of consumption
taxes.  Though, it is usually argued that VAT does not include
price of goods or services. That theory may be true with the
manufacturer or the producer, but within the context of the final
consumer, it is not true. Because, the final consumer pays the
actual price of the goods and services, as well as the VAT on same,
without passing it to any other person.

Therefore, the way forward for VAT administration and collection
in Nigeria is:

– Amend section 162 (1) (2) of the 1999 constitution and provide
for States to receive VAT revenue allocation based on the
percentage of VAT revenue that emanates from their respective
states. As well as amending section 40 of the VAT Act 2004, to
reflect the suggested changes on section 162 of the
constitution.

Amend item 62, Part 1 of the Second Schedule, or the exclusive
list of the 1999 constitution, where it will specifically authorize
the Federal Government to administer and collect VAT on behalf of
States.

Increase the Value Added Tax base, by states repealing all sales
or consumption taxes and create enabling environment for FIRS to
collect VAT in all States. Because allowing States to administer
and collect their respective sales taxes or purchase taxes or VAT,
will lead to double taxation of goods and services consumed.
 As well as a distortion of the entire consumption tax
structures in the country, which is not the best for an economy
that is seemingly gasping for survival.

It is trite that pursuant to Section 3, 7 and 25 of the FIRS
Act, 2007 (as amended) the FIRS administers VAT being the Federal
Inland Revenue Service and makes VAT policies through the FIRS
Board, without adequate presence of the State Internal Revenue
Service. For the Commissioners representing each State of the
federation under the structure of the Revenue Mobilization
Commission, statutorily made to represent the States, are not
adequate representation of state interest. Therefore, Section 3 of
the said FIRS Act, which established the FIRS Board and it
membership should be amended to ensure that the State Internal
Revenue Service is featured prominently under the FIRS Board for
the purpose of central VAT policies and administration.

The already existing structure of fiscal federalism or taxation
administration federalism can be sustained as provided under the
taxes and levies (approved right for collections) Act in respect of
other taxes

However, as it relates to consumption taxes or VAT, a single and
central VAT structure should be maintained to prevent distortion of
consumption tax regime in the country. As well as prevent or reduce
the already existing problem of duplicity of taxes in the country.
By so doing, cost of VAT administration or collection in the
country will be reduced drastically.

Written by Stefan Onome Okorodudu, Esq. LLB, BL, LLM., PhD. of
S.O. Okorodudu & Associates, Candidate, University of Abuja,
Nigeria.,onomelk4@gmail.com

[1]Meshach Nnama Umenweke, “Tax Law and Its
Implications for Foreign Investments In Nigeria”,
(1^st edn, Nolix Educational Publications, Uwani, Enugu
State, Nigeria, 2008) P. 234

[2] Ibid, P 235

[3] Value Added Tax Act (VAT Act) Cap. VI, 2004 (as
amended by the Finance Act, 2020) s 12 (1) (2)

[4] Ibid, s 14 (1) (2)

[5] The Constitution of  The Federal Republic
of Nigeria ( CFRN) 1999 (as amended), s 315.

[6]  Federal Inland Revenue Service
(Establishment) Act  (FIRS Act)  No. 13, 2007 ( as
amended by the Finance Act, 2020)  s 8 (1) (2).

[7] Taxes and Levies (Approved List for Collection)
Act, 2004 Part 1, paragraph 4, of its Schedule

[8]  Taiwo Oyedele (of Fiscal Policy Partner &
Africa Tax Leader at Pricewater Coopers -PwC), Matters arising over
VAT Collection in Nigeria, The Nation Newspaper ( Lagos,
 9^th August , 2021) 12. Where it reported thus: “in
2020 for instance, total VAT collection was about N1.53 trillion,
with import VAT being N348 Billion (or 22.7 percent) while foreign
non-import VAT was N420 billion (or 27.4 percent) and local VAT
amounted to N763 billion for 49.8 percent)”.

[9] VAT Act 2004 (as amended) s 40 (share among the
three tiers thus:  Federal Government 15%, State Government
50% and Local Government 35 %

[10] Oil prices drops to 2 percent on
Monday, extending last week”s steep losses on the back of a rising
US dollar and concerns that new pandemic curbs in Asia, especially
China, may set back the global recovery in fuel demand”, 
Economy &  Business on Aljazeera.com (9^th
August, 2021)

[11] [1985] 1 NWLR ( Pt 395)

[12]  [2003] 6 SC (Part 1) at p. 61
lines 20 -25

[13] [2021] 56 TLRN 1

[14] Supra

[15] Supra

[16] Supra

[17]  Suit No. FHC/
PH/CS/149/2020

[18]  Citi Bank V FIRS [2017] 30 TLRN
 Pp. 54-56

[19]  The Canadian provinces once had
such VAT and Purchase Tax argument with the Federal Govt, which was
resolved amicably by an harmonization of all the sales/ purchase
taxes,  Goods and Services Tax  and VAT.  In the
end, all provinces in Canada (with the exception Quebec) left these
taxes for the federal government to administer on behalf of the
provinces. See the Tax and Constitutional case between the
provinces of Alberta,  Ontario, and British Columbia v. the
Federal Government   (Canada) (1992)2
S.C.R. 445 (Can.)

[20]  The then Minister of Finance,
 Mrs Kemi Adeosun once remarked that: “ 87% of Nigeria’s VAT
comes from four states and Federal Capital Territory (FCT) while
only 13% comes from 32 other states in the federation. The
Minister, while speaking at the parley between the federal
government and progressive governors forum (PGF) on the
1^st of  August, 2017, stated that Lagos has the
highest VAT collection, amounting to 55% of Nigeria’s VAT According
to her, FCT has the second place with 20%, while 6 % in Rivers, 5%
in Kano and 1% in Kaduna”< https://nairametrics.com/2017/08/02/these-five-states-account-for-87-of-nigerias-vat-revenue/^[1]> (assessed
9/08/2021)

[21] Richard M Bird and Michael Smart,
‘VAT in a Federal System: Lessons from Canada’, (2012) (34) (4)
Journal of Public Budging & Finance 4.

By Stefan Onome Okorodudu

1.0       Value Added Tax
and Its Nature in Brief

 Value Added Tax (VAT) is a consumption
tax, it is a tax on spending, borne by the final consumer of goods
and services, because it is included in the price paid. 
Although, the VAT element is to be separately indicated in the tax
invoice, which will be either VAT inclusive or VAT exclusive[1].

Since VAT is a consumption tax, it is relatively easier to
administer and difficult to evade[2]. That is, as
you have thirst, you spend or consume to satisfy that thirst. Same
way you can’t evade your thirst, is same way you can’t evade VAT,
all things been equal.  The tax is also easier to administer
because of the chain of input/output provision. Which ensures that
where a producer of goods or services, purchase raw materials to
produce the said goods, he pays input and collect output VAT when
selling his finished products to the final consumer. This is made
possible by the VAT Act, refund provision, which provides thus:

(1) “A taxable person shall pay to the supplier the tax on
taxable goods and services purchased by or supplied to
him.

(2) The tax paid by a taxable person under subsection (1) of
this section shall be known as input tax.”[3]

(1) “A taxable person shall on supplying taxable goods or
services to his accredited distributor, agent, client or consumer,
as the case may be, collect the tax on those goods or services at
the rate specified in section 2 of this Act. (2) The tax collected
by a taxable person under subsection (1) of this section shall be
known as output tax.”[4]

Be that as it may, the yield from VAT is a fairly accurate
measurement of the growth of an economy, since purchasing power of
the currency in use increases with economic growth. VAT is a
self-assessment tax that is paid when returns are rendered.

1.1       Introductory
Background

Before now, what existed as a consumption of goods and services
tax was the Sales Tax, which was introduced into the Nigeria tax
system by the Sales Tax Decree No. 7, 1986. With the quest to
improve revenue generation in Nigeria, the Value Added Tax (VAT)
was introduced into the corpus of Nigeria tax regime by virtue of
the VAT Decree No. 102, 1993. This said Sales Tax and VAT are
basically same tax, except that the operation of VAT has a larger
tax base than sales tax.

Pursuant to the Nigeria constitution[5], the
referred VAT Decree No. 102 transited into a valid law in Nigeria
and later became the VAT Act, Cap. V1, LFN, 2004 (as amended by the
Finance Act, 2020). Though, in respect of the same VAT, the tax is
currently administered and collected in Nigeria by the Federal
Inland Revenue Service, pursuant to the Federal Inland Revenue
Service Act[6] and the Taxes and Levies
(Approved List for Collection) Act[7]

VAT, being partly a tax on consumption of goods/services which
emanates from importation of goods/ services (imported VAT), the
Federal Government through the FIRS/Custom Service, is a
stakeholder. For also being tax on consumption of goods and
services, which emerges from the internal economic transactions of
the various federating units, the various states are
stakeholders.[8]

This being the case, it is expected that there would be Federal
and State contention over who should administer and collect VAT in
Nigeria. Knowing that the incidence of this tax cuts across the
federating states, as well as the borders over which the Federal
Government has jurisdiction. This led to the policy where a central
VAT regime to be administered by the Federal Government is put in
place, and the revenue generated is shared among the three tiers of
government, pursuant to the VAT Act, 2004[9]( as
amended in 2020). This is so because, if the states and the Federal
Government are allowed to collect their individual VAT or Purchase
Taxes on consumption of goods and services, such goods or services
will suffer endless double taxations as the goods/ services move
around the federation. This contention for the authority over VAT
or Purchase Tax or Sales Tax was envisaged in the 1960s. This was
why under the 1960 and 1963 constitution of the Federal Republic of
Nigeria, sales tax as replaced by VAT was provided for under the
then item 38 of the exclusive legislative list. Meaning that it was
clear under the 1960 and the 1963 constitution that the Federal
Government to the exclusion of other tiers of government, was
constitutionally empowered to make laws over Sales Tax, administer
and collect same.

1.2 Birth of The Lingering Legal Tussle Between the
Federal Government and The States

The genesis of this unending legal tussle started by the
omission of VAT (which came to replace Sales Tax) from the
exclusive legislative list under the 1979 and the current 1999
constitution as amended. Unlike what it was under the said 1960 and
1963 constitution.

Expectedly, this said omission has led to the unending legal
battles between the Federal and State Governments over the question
of who should administer and collect VAT in Nigeria. Coupled with
the current scamper for state internally generated revenue; as well
as the anxiety to improve federal or national revenue, because of
the global decline in crude oil prices.[10]

Instances of such cases are the A.G., Ogun State v.
Alhaja Ayinke Aberuagba & 7 Ors[11],
A.G., Lagos State v. A.G., Federation & 35 Ors[12], Nigeria Employers Consultative
Association (NECA) & Anor v. A.G., Federation & Two Ors, and
Emmanuel Chukwuka Ukala V FIRS[13]

Under the case of AG, Ogun State v. Alhaja Ayinke Aberuagba
& 7 Ors[14] the Supreme Court held
thus:

When all the relevant provisions of the Constitution are
read together, it is obvious that the trade and commerce power
conferred on the federal government in item 61 of the Exclusive
List is limited. The words “in particular” in that provision are
words of limitation, not of emphasis. International and inter-state
trade and commerce are reserved for the Federal Government while
intra-state trade and commerce is left for the States. Indeed, all
the tiers of government (i.e., Federal, State and Local) have been
accorded their respective shares of trade and commerce
power.

Under the AG Lagos State v. AG Federation & 35
Ors[15] Uwaifo JSC established
that:

Once it is established that the power of making laws is
reserved exclusively by the Constitution for the States under their
residual power, the Federal Government cannot be allowed to enact
any Act or make any regulation under any Act in any guise in
competition with any State in respect thereof no matter the
salutary nature of such a law. The court must so decide in an
appropriate case.

Under the Nigeria Employers Consultative Association (NECA)
& Anor v. A.G., Federation & Two Ors, – the Kano State
Consumption Tax Law was nullified on the basis that it imposed
consumption tax at 5% on goods and services which were already
subject to VAT

While in the case of Emmanuel Chukwuka Ukala v.
FIRS[16], yet
another judgment delivered on 11th December 2020, where the Federal
High Court (FHC) held that the powers of the National Assembly to
make laws imposing taxes is limited to the profits/income of
persons/companies, capital gains and stamp duties on instruments
but does not extend to VAT.

As this age long legal fracas between the Federal Government and
the State Governments continued to linger, another one got
triggered on the 9^th day of August 2021. Which is the
A.G., River State v. FIRS/ AG Federation Suit.[17]

1.3 Court Jurisdiction

Within the context of jurisdiction, the Supreme Court judicial
precedent on VAT involving AG Lagos State v. AG federation is
relevant. Here, it was held by the Supreme Court that only Federal
High Court has original jurisdiction to entertain suits relating to
federal revenues and not the Supreme Court. In which case, the
Federal High Court that sat in Rivers State had jurisdiction.
Suggesting that the issue of jurisdiction is relatively silent,
even though it can become an issue if we bring the Jurisdiction of
the Tax Appeal Tribunal and that of the Supreme Court to the
fore.

However, by virtue of the ratios of the cases above: It becomes
clear from the first mentioned suit, to the last of them that the
courts had never being consistent in their positions on the
question of which of the tiers of government should administer and
collect VAT in Nigeria. This is because there is no adequate or
clear legislation in Nigeria on which tier of government should
have power over VAT. Meaning that the Federal and State
Governments are seeking for judicial solutions where only adequate
legislative solution is needed. That is why we find
court decisions everywhere, yet none is bringing the legal tussle
to a conclusive end.

Just like setting the Nigeria VAT regime in disarray, you find
one competent court deciding that the Federal Government can
administer VAT within the context of international trade and
commerce pursuant to item 62, Part 1, 2^nd Schedule of
the 1999 constitution as amended. While the states can administer
Sales Tax within their respective states.

In another suit, you find a competent court once more, deciding
that by virtue of the same item 62, the Federal Government has
covered the field, as such the State Governments cannot administer
sales or consumption taxes within their respective states, neither
can they validly legislate on same.

Yet in another context, like the Rivers State or Ukala’s case,
you find the court deciding that the mentioning of international
trade /commerce under item 62 of the constitution does not amount
to the power of the Federal Government to administer or have power
over VAT. Since VAT was not specifically mentioned under item 62,
like Stamp Duty and Income Taxes are specifically mentioned under
items 58 and 59 of the exclusive legislative lists. Which implies
that the none mention of VAT in the exclusive or concurrent list,
amounted to it total exclusion from the powers of the Federal
Government. As a result, becomes a residual matter that only the
states can legislate upon.

It is almost certain that whatever position the Supreme Court
takes over the Rivers State and the Federal Government VAT suit, it
will not operate to put an end to this tussle, until the
federal/state stakeholders settle it via a legislation.

I mean, there is no knowing as to the conclusive end of the
question on who should have authority over VAT, purchase tax or
sales tax in Nigeria. Should the country continue to
seek judicial interpretation where there is no adequate legislation
for which interpretation should be given? Is it not clear that this
continuous litigation over VAT militate against the volume of
revenue that could be generated from VAT, if same is administered
by a definite authority without distractions?

A careful look at item 62, part 1, second schedule of the 1999
constitution (as amended) and the dictions of trade/commerce.
 It shows that there is no specific mention of VAT like Stamp
Duty was mentioned under Item 58 or like Income Tax was mentioned
under item 59.

This suggest that if the court decides, (without being under the
influence of public policy) which tier of government has the
authority to administer VAT, it should be the State government.
The principle being that when a court is invited to
interpret taxation or revenue laws, (the constitution or statutes)
they are expected to interpret them literally and strictly without
inferences or additions[18].
 For based on the said principle, the question will be whether
VAT was primarily mentioned under the constitution or not, which is
simply no.

2.0 Conclusion

-The scenario in entirety portrays that the reasons for which
the Federal Government has been allowed to administer/collect VAT
on behalf of the states is the fact that it is convenient.

-That it will aid easy redistribution of revenue or wealth among
the various states, not minding the volume of state’s contribution
to the generation of VAT revenue.

-That it will check double taxation of goods and services around
the federation, to check further inflation on prices of goods and
services.

-It is trite that pursuant to Section 3, 7 and 25 of the FIRS
Act, 2007 (as amended) the FIRS administers VAT being the Federal
Inland Revenue Service and makes VAT policies through the FIRS
Board without an adequate presence of the State Internal Revenue
Service

As the first to the third conclusions above are not laws, it
becomes pertinent for the Federal Government and the federating
units to harmonize the entire consumption taxes and birth a
holistic VAT legislation.

More-so that section 162 (1) (2) of the 1999 constitution, which
provided for derivation principle in Nigeria, disappointingly, did
not include taxation revenue under the derivation allocation
provision. Consequently, State Governments have no option but to
contend over the rights to administer VAT within their respective
states.  Because it only demonstrate injustice, that they will
be receiving shares of VAT revenue not in accordance with the
volume of VAT revenue generated from their states.  This being
the case, states like Lagos State, Rivers State, Kano State, where
the bulk of the VAT transactions emanate from, cannot stand, and
watch VAT revenue largely generated from their states to be shared
equally among non-VAT viable states pursuant to section 40 of the
VAT Act.

This necessitate the need to proffer steps to be taken by the
Federal Government in conjunction with the State Governments over
VAT[19]. Instead of seeking judicial
interpretation where there is no adequate Sales Tax, Purchase Tax
or VAT provision under the 1999 constitution as amended.

3.0 The Way Forward on The Lingering Contention Between
the Federal Government and The State Governments Over
VAT

Value Added Tax revenue is not one natural resource like gold or
crude oil that is mainly concentrated in one segment of the
federation, so that we jump on the bandwagon to agitate that under
the principle of true federalism, state with such resource should
be allowed to control them. No, VAT revenue is one revenue that
even the Federal Capital Territory contributes to it
generation.[20]  As a result, it is
always fashionable for the federating states to allow or permit the
Federal Government to administer VAT on behalf of the states, as it
has been successfully practiced in Canada[21].
However, states must strive to have justice reflected in the
distribution of VAT revenue among the states.

For If one gets too hasty, the temptation will be to suggest
that each state should be allowed to administer their respective
VAT. But the reality that goods and services will go round various
states before they are finally consumed, is a globally recognized
yardstick when considering which tier of government should
administer VAT. Since allowing each state to tax the consumption of
goods/ services within their states, will irresistibly occasion
double taxation, which will in turn breed inflation on the prices
of goods/services, as one of the practical effects of consumption
taxes.  Though, it is usually argued that VAT does not include
price of goods or services. That theory may be true with the
manufacturer or the producer, but within the context of the final
consumer, it is not true. Because, the final consumer pays the
actual price of the goods and services, as well as the VAT on same,
without passing it to any other person.

Therefore, the way forward for VAT administration and collection
in Nigeria is:

– Amend section 162 (1) (2) of the 1999 constitution and provide
for States to receive VAT revenue allocation based on the
percentage of VAT revenue that emanates from their respective
states. As well as amending section 40 of the VAT Act 2004, to
reflect the suggested changes on section 162 of the
constitution.

Amend item 62, Part 1 of the Second Schedule, or the exclusive
list of the 1999 constitution, where it will specifically authorize
the Federal Government to administer and collect VAT on behalf of
States.

Increase the Value Added Tax base, by states repealing all sales
or consumption taxes and create enabling environment for FIRS to
collect VAT in all States. Because allowing States to administer
and collect their respective sales taxes or purchase taxes or VAT,
will lead to double taxation of goods and services consumed.
 As well as a distortion of the entire consumption tax
structures in the country, which is not the best for an economy
that is seemingly gasping for survival.

It is trite that pursuant to Section 3, 7 and 25 of the FIRS
Act, 2007 (as amended) the FIRS administers VAT being the Federal
Inland Revenue Service and makes VAT policies through the FIRS
Board, without adequate presence of the State Internal Revenue
Service. For the Commissioners representing each State of the
federation under the structure of the Revenue Mobilization
Commission, statutorily made to represent the States, are not
adequate representation of state interest. Therefore, Section 3 of
the said FIRS Act, which established the FIRS Board and it
membership should be amended to ensure that the State Internal
Revenue Service is featured prominently under the FIRS Board for
the purpose of central VAT policies and administration.

The already existing structure of fiscal federalism or taxation
administration federalism can be sustained as provided under the
taxes and levies (approved right for collections) Act in respect of
other taxes

However, as it relates to consumption taxes or VAT, a single and
central VAT structure should be maintained to prevent distortion of
consumption tax regime in the country. As well as prevent or reduce
the already existing problem of duplicity of taxes in the country.
By so doing, cost of VAT administration or collection in the
country will be reduced drastically.

Written by Stefan Onome Okorodudu, Esq. LLB, BL, LLM., PhD. of
S.O. Okorodudu & Associates, Candidate, University of Abuja,
Nigeria.,onomelk4@gmail.com

[1]Meshach Nnama Umenweke, “Tax Law and Its
Implications for Foreign Investments In Nigeria”,
(1^st edn, Nolix Educational Publications, Uwani, Enugu
State, Nigeria, 2008) P. 234

[2] Ibid, P 235

[3] Value Added Tax Act (VAT Act) Cap. VI, 2004
(as amended by the Finance Act, 2020) s 12 (1) (2)

[4] Ibid, s 14 (1) (2)

[5] The Constitution of  The Federal
Republic of Nigeria ( CFRN) 1999 (as amended), s 315.

[6]  Federal Inland Revenue Service
(Establishment) Act  (FIRS Act)  No. 13, 2007 ( as
amended by the Finance Act, 2020)  s 8 (1) (2).

[7] Taxes and Levies (Approved List for
Collection) Act, 2004 Part 1, paragraph 4, of its Schedule

[8]  Taiwo Oyedele (of Fiscal Policy
Partner & Africa Tax Leader at Pricewater Coopers -PwC), Matters
arising over VAT Collection in Nigeria, The Nation Newspaper (
Lagos,  9^th August , 2021) 12. Where it reported
thus: “in 2020 for instance, total VAT collection was about N1.53
trillion, with import VAT being N348 Billion (or 22.7 percent)
while foreign non-import VAT was N420 billion (or 27.4 percent) and
local VAT amounted to N763 billion for 49.8 percent)”.

[9] VAT Act 2004 (as amended) s 40 (share among
the three tiers thus:  Federal Government 15%, State
Government 50% and Local Government 35 %

[10] Oil prices drops to 2 percent on Monday,
extending last week”s steep losses on the back of a rising US
dollar and concerns that new pandemic curbs in Asia, especially
China, may set back the global recovery in fuel demand”, 
Economy &  Business on Aljazeera.com (9^th
August, 2021)

[11] [1985] 1 NWLR ( Pt 395)

[12]  [2003] 6 SC (Part 1) at p. 61 lines
20 -25

[13] [2021] 56 TLRN 1

[14] Supra

[15] Supra

[16] Supra

[17]  Suit No. FHC/ PH/CS/149/2020

[18]  Citi Bank V FIRS [2017] 30 TLRN
 Pp. 54-56

[19]  The Canadian provinces once had such
VAT and Purchase Tax argument with the Federal Govt, which was
resolved amicably by an harmonization of all the sales/ purchase
taxes,  Goods and Services Tax  and VAT.  In the
end, all provinces in Canada (with the exception Quebec) left these
taxes for the federal government to administer on behalf of the
provinces. See the Tax and Constitutional case between the
provinces of Alberta,  Ontario, and British Columbia v. the
Federal Government   (Canada) (1992)2
S.C.R. 445 (Can.)

[20]  The then Minister of Finance,
 Mrs Kemi Adeosun once remarked that: “ 87% of Nigeria’s VAT
comes from four states and Federal Capital Territory (FCT) while
only 13% comes from 32 other states in the federation. The
Minister, while speaking at the parley between the federal
government and progressive governors forum (PGF) on the
1^st of  August, 2017, stated that Lagos has the
highest VAT collection, amounting to 55% of Nigeria’s VAT According
to her, FCT has the second place with 20%, while 6 % in Rivers, 5%
in Kano and 1% in Kaduna”< https://nairametrics.com/2017/08/02/these-five-states-account-for-87-of-nigerias-vat-revenue/^[1]> (assessed
9/08/2021)

[21] Richard M Bird and Michael Smart, ‘VAT in
a Federal System: Lessons from Canada’, (2012) (34) (4) Journal
of Public Budging & Finance 4.