A Federal High Court has ruled that Value Added Tax (VAT) do not cover the field of consumption tax chargeable by states as the Constitution did not vest powers on the Federal Government to legislate over consumption tax on individuals or goods and services consumed in hotels, restaurants and event centres.
With the ruling, the court made it clear that the power to impose consumption tax was a residual power within the exclusive competence of the states.
A tax alert sourced from PwC, indicated that in addition, the court also held that VAT was null and void since it is not in consonance with the Constitution.
The Court held further that the Tax and Levies (Approved List of Collection etc.) Act (TLA), being a subsequent law to the VAT Act, had impliedly repealed the provisions of the VAT Act, especially the power to impose consumption tax.
The Court, therefore, restrained the Federal Inland Revenue Service (FIRS) from imposing VAT on goods and services consumed in hotels, restaurants and event centres.
Sometimes in 2015, there was an amendment of the Taxes and Levies (Approved List for Collection) Act, which is a law of the National Assembly, which by its new provisions include ‘Hotel, Restaurant or Event Centre Consumption Tax’ as one of the taxes states can impose and collect.
Relying on the amended Act’s provisions, Lagos State Government in 2018 introduced the Hotel Occupancy and Restaurant Consumption (Fiscalisation) Regulations 2017 (Regulations), which granted the state powers to install electronic fiscal devices for the purpose of monitoring the tax at the point of sale to customers.
Not satisfied with the burden of the regulations, the Registered Trustees of Hotel Owners and Managers Association of Lagos, in a suit against the state’s Attorney General of Lagos State and FIRS, asked the Federal High Court to determine whether VAT has covered the field of taxing goods and services including those consumed in hotels, restaurants and event centres in Lagos State; whether the Regulations are operative since VAT has covered the field and whether the FIRS is not the only lawful agency allowed to administer consumption tax on goods and services in hotels, restaurants and event centres in Lagos State.
In May 2018, the Federal High Court issued an Order restraining the Lagos State Government from enforcing both the Consumption Tax Law and Regulations, pending the determination of the suit.
Subsequently, the Court varied its Order and allowed Lagos State continue enforcing the Consumption Tax Law but not the Fiscalisation Regulations
The legal basis of the Federal High Court ruling is Nigerian Constitution which classifies legislative powers into Exclusive and Concurrent lists.
Whereas the Federal Government has exclusive powers to legislate over items on the Exclusive list, both the Federal and State governments can legislate over items contained in the Concurrent list.
Any matter not contained in either list is deemed to be a residual matter over which the States have exclusive competence to legislate.
Despite these classifications, the Federal Government, through the National Assembly, however, still has powers to legislate over collection or administration of tax by states such as the Personal Income Tax Act (PITA), which is a Federal Law but administered by the state authorities.