X-raying the Value Added Tax controversy

The recent Judgment delivered by Hon. Justice Stephen Dalyop Pam of the Federal High Court sitting in Rivers State in the case of Attorney General of Rivers State and Federal Inland Revenue Service and the Attorney General of the Federation has caused uproar in the Nigerian legal and political communities.

The pertinent issue in that case is whether the National Assembly can legislate and make laws regarding the Value-Added Tax (VAT), bearing in mind the Value-Added Tax Act, 2020 and the various constitutional provisions, especially Section 4, items 58 and 59 of Part I of the second schedule and item 7 of part II of the second schedule of the Constitution of the Federal Republic of Nigeria (as amended).

A few days after the aforementioned judgment was delivered, the Lagos State governor signed the Value-Added Tax (VAT) bill into law.

As if this was not enough, on the 24th of August, 2021, the Attorney Generals of the 36 states of the federation filed a suit before the Supreme Court, praying the apex court to direct the Federal Government to remit funds generated from stamp duties from 2015 to 2020 into their various state accounts. This amounts to ₦176,067,400,000,00 (One hundred and seventy-six billion, sixty-seven million, four hundred thousand naira).

Interestingly, the Court of Appeal sitting in Abuja has ordered that all parties maintain status quo regarding the VAT judgment.

This piece will briefly introduce the provisions of the constitution in relation to this brouhaha, summarise the judgment of the Federal High Court sitting Rivers State, its implications, divergent positions of legal minds, and then that of the author and recommendation.

 

Brief Introduction of the provisions of the Constitution on the issue of Value-Added Tax

Section 4 (1) of the Constitution of the Federal Republic of Nigeria (as amended) confers the power to make laws for the federal government to the Senate and House of Representatives (both referred to as the National Assembly).

Section 4 (2) of the Constitution of the Federal Republic of Nigeria (as amended) confers the National Assembly with powers to make laws regarding items included in the exclusive legislative list in part I of the schedule to the constitution.

Section 4 (4) of the Constitution of the Federal Republic of Nigeria (as amended) confers power on the National Assembly to make laws regarding the concurrent legislative list in part II of the second schedule.

Section 4 (7) of the Constitution of the Federal Republic of Nigeria (as amended) confers the state Houses of Assembly to make law regarding first; any matter not included in the exclusive legislative list, second; any matter included in the concurrent legislative list, third; any matter with respect to which it is empowered to make in accordance with the constitution.

Part I of the second schedule (exclusive legislative list) – Item 58 bothers on stamp duties while 59 bothers on taxation of incomes, profits and capital gains.

Part II of the second schedule (concurrent legislative list)- Item 7 states that the National Assembly may enact a law that the collection and imposition of tax or duty on capital gains income or profit of persons other than companies and documents or transactions by way of stamp duties must be carried out by the state government.

Having this background, we will now consider the Federal High Court Judgement which sat in Rivers state.

The Federal High Court sitting in Rivers State Judgment

Hon. Justice Stephen Dalyop Pam of the Federal High Court sitting in Rivers state in the case of Attorney General for Rivers State and Federal Inland Revenue Service, Attorney General of the Federation determined three substantive issues.

The first is whether the Federal Government of Nigeria can make and impose laws on taxation other than those in items 58 and 59 of Part I of the second schedule to the Constitution of the Federal Republic of Nigeria (as amended).

The Federal High Court held that the Federal Government does not have the power to impose and make laws regarding items not stated in items 58 and 59 of Part I of the second schedule to the Constitution of the Federal Republic of Nigeria (as amended). The Court’s words are hereinunder reproduced;

“In this case, the provisions of items 58 and 59 of Part I of the second schedule are clear and unambiguous and this court is duty-bound to give the provisions their literal and ordinary meaning which is that the Federal Government is only empowered to enact law in relation to stamp duties, taxation of incomes, profits and capital gains only.  The interpretation does not lead to absurdity in any form or manner and it is not inconsistent with any other part of the 1999 Constitution because as the Court stated earlier, the Court has searched other parts of the Constitution to see if there is any provision that allows the Federal Government to impose and collect taxes outside the scope of items 58 and 59 of Part I of the Second Schedule and the Court can find none”.

The second issue determined by the court was; whether the powers of the Federal Government to delegate the power of collection of the taxes mentioned in item 7 can be delegated to persons other than the state governments. The court held that any delegation for collection of such tax except the state governments is null and void.

The third issue is; whether the taxes and levies Act is constitutional. The court held that the Act is unconstitutional and void as it has no basis since the Constitution of the Federal Republic of Nigeria (as amended) did not provide for same to be legislated upon by the National Assembly.

Implication of the Rivers State High Court if upheld by the Appellate Courts

A major implication of the judgement is that taxes such as education tax, withholding tax and technology tax cannot be legislated upon and or imposed by the Federal Government.

 

Divergent Positions of legal minds

In this section, I will consider the positions of Jubrin Okutepa (SAN), Femi Falana (SAN) and Farouk Obisanya Esq.

 

Jubrin Okutepa SAN:

On the 10th of September, 2021, the revered learned silk posted his opinion on his Facebook account.

According to the silk, the Value-Added Tax Act, 2020 is a valid legislation and as such constitutional. In fact, the learned silk posited that any state law that is inconsistent with Value-Added Tax Act is void.

He added that item 59 on the exclusive list empowers the Federal Government to make law on taxation of incomes. Going forward, the concurrent list does not confer on the state house of assembly the power to make law to collect tax.

The silk concluded that the VAT Act, 2020 is meant to cover the field and very much valid.

 

Femi Falana (SAN):

According to a news report published on the 30th of August, 2021, the learned silk had thrown his weight in favour of the judgement of the Federal High Court sitting in Rivers State.

He stated that VAT is not included in the Exclusive Legislative List nor the Concurrent Legislative List and as such, the Federal Government cannot legislate and or impose VAT.

 

Farouk Obisanya Esq:

Farouk Obisanya Esq. explained that there are three lists in the constitution; the exclusive, concurrent and residual (although not expressly mentioned). According to him, only the National Assembly can legislate over an item listed on the exclusive list, both the Federal and State Governments can legislate on items in the concurrent list and any item not in any of the aforementioned list will fall under the residual list which is meant for the state governments alone.

According to him, the value added tax is not included in the exclusive nor concurrent list and as such, the Federal Government cannot legislate nor impose such tax.

 

Position of this writer:

It is clear that the Federal Government can only make laws regarding items contained in the exclusive and the concurrent lists. Although, the state governments can also make laws regarding items contained in the concurrent list.

It is also clear that the exclusive and concurrent list do not confer the power to make laws regarding value added tax to either the state government nor federal government.

However, Section 4 (7) (a) of the Constitution of the Federal Republic of Nigeria (as amended) confers the state governments with powers to make laws regarding any matter that is not included in the Exclusive Legislative List.

It is my position that Section 4 (7) (a) of the Constitution of the Federal Republic of Nigeria (as amended) confers the state government to make a law regarding value added tax since it is not in the exclusive nor concurrent list.

Going forward, the law is settled that the express mention of one item is the exclusion of others not mentioned. This was the position of the Supreme Court in Federal Republic of Nigeria v. Osahon & Ors. (2006) LPELR-3174 page 80, paragraphs B-D (SC) where Kastina-Alu J.S.C stated;

“The principle is well settled in the construction of statutory provisions, where a statute mentions specific things or persons, the intention is that those not mentioned are not intended to be included. See Buhari v. Yusuf (2003) 14 NWLR (Pt. 841) 446.

The exclusive and concurrent lists do not mention Value- Added Tax and as such, the Federal Government cannot legislate and or impose such tax.

 

Recommendation

It is my recommendation that the time to amend the provisions of the constitution is ripe. To settle the VAT controversy, the National Assembly has to first amend the constitution to reflect that they can legislate over Value- Added Tax.

Sanya is the managing partner of Paddle Solicitors. He can be reached via [email protected], [email protected], 08147439799.

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