September 19, 2011 10632 VIEWS


Monday, September 19, 2011 2:11 PM / By Olumide K. Obayemi*


Looking at this discourse in the aftermath of “Lagos Board of Internal Revenue v. Nigerian Bottling Company Plc and Anor” - Suit No. ID/45/2002



The title of this work raises a question, and this author’s humble answer is: “YES.” On June 18, 2009, Hon. Justice O. H. Oshodi of the High Court of Lagos State, in Lagos Board of Internal Revenue v. Nigerian Bottling Company Plc and Anor, Suit No. ID/45/2002, dismissed the claim of Lagos State Board of Internal Revenue (“LSBIR”) against Nigerian Bottling Company, Plc. (“NBC”) that had sought to impose sales tax on NBC.


With profound respect to the learned Judge, the decision is flawed on the grounds that under a federal constitution as obtains in Nigeria, state governments, such as Lagos State, based on federal constitutional authority, are empowered to impose sales and use taxes as they deem fit. The court ought to have applied the legal concept of "Within the State's Borders," as the only firm limitation imposed on the State governments' power to impose tax is that such states' taxed can only apply to transactions or incidents occurring within the state's borders.


Simply put, were any of the sales taxes imposed by LSBIR on NBC connected to NBC’s sales within the jurisdiction of Lagos State government? If so—LSBIR was right to impose, assess and collect such sales tax.




The facts of the case are very simple and straightforward. Lagos State Government, acting through LSBIR, on December 1, 2000, sent a letter to NBC, informing NBC of the reintroduction of sales tax in Lagos State while adding that "the tax rate shall be 5% flat on Goods/Services produced in or brought into the State." Further, LSBIR advised NBC to obtain sales tax forms for registration as “a collector of sales tax” on behalf of LSBIR.


NBC failed and/or refused to collect the requested sales tax, and did not obtain the tax forms.


Therefore, acting under section 6 of the Lagos State Sales Tax Law, 1982 No. 9, (Sales Tax Law), LSBIR made an estimate of the sum due from NBC as sales tax sum of N231,500,000.00 plus a 5% penalty of N11,575,000 (assessed on the estimated sum), respectively, for the period between and including December 2000 and January - May 2001.


Thus, in another July 12, 2001 Notice of Assessment issued by LSBIR, NBC was further assessed the sum of N243,075,000 being the estimated sales tax and interest. This Notice of Assessment was served on NBC on December 31, 2001.


After receiving the Notice of Assessment, although NBC did not pay the assessed sum of N243,075,000, NBC filed a Notice of Objection dated July 30, 2001 on the ground that the legality of the Sale Tax Law was the subject of litigation.


In reply, on September 12, 2001, LSBIR served a demand notice for the assessed sum of N243,075,000 on NBC.


As a result, the law suit commenced, wherein LSBIR instituted an action at the Lagos High Court claiming the sum of N210,000,000 as sales tax arrears and penalty as well as interest on the said sum at the rate of 21% from June 2001 until judgment and thereafter at the rate of 6% per annum until liquidation. 




At the trial, before Hon. Oshodi, lawyers from ǼLEX, the law firm representing NBC raised the following defenses to LSBIR’s claims:


(i) LSBIR was not entitled to impose sales tax on LSBIR in view of the provisions of the Value Added Tax Act. Reliance was placed on the judgment of the Court of Appeal in Attorney General of Lagos v. Eko Hotels Limited [2008] All FWLR (Pt. 398) 235 where the court held that both taxes are the same and that the imposition of both taxes amounted to double taxation. 


(ii) The imposition of sales tax on goods brought into Lagos State and sold outside Lagos State is unconstitutional as it amounts to a tax on inter-state trade and commerce which is outside the jurisdiction of Lagos State. 


(iii) The mode of assessment adopted by LSBIR was arbitrary and capricious and not in accordance with the Sales Tax Law 


(iv) LSBIR had failed to comply with the provisions of the Sales Tax Law particularly with respect to the service of requisite notices 


In its judgment, the Court agreed with NBC’s arguments on points 1 and 4 above and dismissed LSBIR’s action.


What follows below is a discussion of the High Court’s decision and the validity thereof.




In a previous work, entitled, What Manner of Sales Tax?, in This Day (Lagos)—ANALYSIS, on July 18, 2005, this author, had revisited the case of UAC Plc & Ors v FBIR & Ors, (Suit No.: FHC/L/CS/350LOS) by examining Nigeria's Sales Tax regime and its legality or otherwise. See


In UAC v FBIR, Professor Oluwole Akanle, UAC's Counsel, had argued that the tax imposed by the Value Added Tax Act of 1993, No. 102, (VAT Act) and the Lagos State Sales Tax law, 1982 No. 9, (Sales Tax Law) amounted to "Double Taxation." Akanle went on to argue that by the combined operation of Section 4 of the Federal Republic of Nigeria Constitution, the doctrine of "covering of the field" and the Nigerian Supreme Court's decision in A-G, OGUN STATE v ABERUAGBA, [1985] 1NWLR (Pt. 3) 395, the VAT Act has covered the same filed that the Lagos State Sales Tax Law seeks to cover. Summing up, Akanle argued that the Lagos State Sales Tax Law is inoperable, unconstitutional, and therefore unenforceable.


We disagree. As stated above, the applicable test is the legal concept of "Within the State's Borders," and in dealing with issues bothering on the concept of "within the state's borders," courts will examine the issues of "Nexus," "Economic Presence," and "Economic Benefits Test."


a.         Defining Sales Tax?


Sales Tax is the tax imposed on persons, entities, and/or businesses within a sub-national geographical authority and on businesses within its borders based on the concept of "being engaged in business." This means that a person or company in business in a jurisdiction when it has personnel, facilities, equipment, inventory, representatives, including having presence in a state through the act of deriving financial benefit or availing itself of the commercial marketplace of that jurisdiction, must pay sales and/or use taxes for carrying on business within that territory.


Clearly, NBC and UAC, and their subsidiaries located within the territory of Lagos State are availing themselves of the laws and other benefits conferred by the Lagos State government, thus satisfying the "Nexus," "Economic Presence," and "Economic Benefits" tests.


b.       Value Added Tax (“VAT”) vs. Sales Tax


In the LSBIR v NBC judgment, Hon Justice Oshodi relied heavily on the findings of Hon. Dongban-Mensem, JCA in Attorney General of Lagos v. Eko Hotels Limited [2008] All FWLR (Pt. 398) 235, at 259-260. According to Hon. Dongban-Mensem, JCA:


“VAT and Sales Tax are the same. VAT, as earlier noted, is ordinary termed national tax on sales of goods and services. The actual beast of burden of the VAT/Sales Tax is the consumer and the tax is charged on consumable items (refer to the schedules of both the VAT and Lagos State Sales Law). The imposition of both VAT and sales tax will therefore create double taxation….


“What this appeal decides is that:- It is the 2nd respondent, as the Federal Government agency alone to which the 1st respondent is obliged to collect and remit VAT. It is accordingly under no obligation to collect additional tax on the sales of its services to its customers. VAT, in this situation has covered the field of tax on consumption of the services provided by the 1st respondent.”


See Hon. Dongban-Mensem, JCA in Attorney General of Lagos v. Eko Hotels Limited [2008] All FWLR (Pt. 398) 235, at pages 259-260

Hon. Oshodi, in LSBIR v NBC, thus felt that she was bound to follow Hon. Dongban-Mensem, JCA’s ruling in Attorney General of Lagos v. Eko Hotels Limited in similar situation as in LSBIR v NBC under common law rule of stare decisis.


Respectfully, we disagree—VAT (Value-Added Tax Act, No 102, Laws of the Federation of Nigeria, 1993) and Sales Tax are different from each other in these circumstances. Sales tax, does not affect the price of “goods and services” but only relates to retail sale of goods and “exchanges” of such goods. In effect, unlike VAT, sales tax is levied on the total value of goods and services purchased.


Often referred to as the "goods and service tax", the Value Added Tax is distinctly different from the sales tax levied on exchanges. The Value Added Tax is a form of indirect tax that is imposed at different stages of production on goods and services. VAT is levied on the import goods as well and the same rate is maintained as that of the local produce. Most of the European and non-European countries have adopted this system of taxation. The transparent and neutral nature of taxation has prompted VAT to emerge as one of the robust revenue raisers in these countries.

Conversely, sales tax, as compared to VAT is the percentage of revenue imposed on the retail sale of goods. Unlike VAT, sales tax is levied on the total value of goods and services purchased.


Appropriate illustrations will enable us to grasp the differences between VAT and Sales Tax. For instance, when the customers take the items to be purchases to the cashier, he/she adds up the prices of all items and adds a percentage of the total. Most stores include the sales tax to the price stated. Meaning, the real price of the item itself is lower. Thus, a sales tax is the one that consumers pay when purchasing an item.


VAT, i.e., Value-added tax is also a tax on consumer items, but instead of charging it to the consumers, it is charged to the producers. This is why it is sometimes called a goods and services tax. For each step in the production process, producers have to pay tax. Based on a VAT policy, consumers are not taxed directly on sales.


Thus, the main difference between the two types of taxes is that sales tax is a direct tax, while VAT is indirect. When purchasing something, the consumer easily detects the sales tax. When the receipt is examined, there is a line separating the cost of the item and the sales tax on it. On the other hand, VAT is less transparent when buying products since the effects are wrapped up in the product’s purchase price.


According to Black's Law Dictionary, Eighth Edition,[1][1] Value-Added Tax is: “a tax assessed at each step in the production of a commodity, based on the value added at each step by the difference between the commodity’s production cost and its selling price……effectively value-added tax acts as a sales tax on the ultimate consumer.”[2][2]


Defining “Sales tax” Black's Law Dictionary stated thus: “[S]ales tax is a sales tax is the tax imposed on the sale of goods and services and is usually measured as a percentage of their price--Also termed retail sales tax.”[3][3]


Further dissimilarities involve the fact that while VAT calculations are similar to those required to calculate state sales taxes, VAT differs from the sales tax, however, in that the taxpayer reduces the sales tax base by the VAT paid to previous producers or distributors in the chain.


Thus, contrary to the assumptions of Hon. Dongban-Mensem and Hon Oshodi, VAT and Use Tax are different from each other and the finding of “double taxation” is fatally flawed.


Further, assuming arguendo, that VAT and Use Tax cover the same grounds, VAT a federal law would only cover inter-state transactions (i.e., transactions between residents of different states) but would not  cover intra-state transactions (i.e., transactions between residents of the same state)


c.       Lagos State Can Impose USE TAX on Goods Sold to Lagos State Indigenes/Residents


Finally, and most importantly, the Lagos State Sales Tax, although styled as a sales tax is actually a “Use Tax”


In LSBIR v NBC, NBC had argued that the imposition of sales tax on goods brought into Lagos State and sold outside Lagos State is unconstitutional as it amounts to a tax on inter-state trade and commerce which is outside the jurisdiction of Lagos State. This is not totally tenable. In so far as Lagos State imposes Use Tax for the use, storage, or consumption of personal property within Lagos State, such is constitutional and does not amount to a tax on inter-state trade and commerce.


Tax collected by the retailer within the state is called sales tax, and the retailer is responsible for reporting and paying the tax to the state. When an out-of-state or online retailer doesn't collect the tax for an item delivered to a person within Lagos State, the purchaser may owe "use tax," which is simply a tax on the use, storage, or consumption of personal property in Lagos State.


Thus, if NBC factories and depots in other states, such as Oyo, Ogun or Rivers States ship goods to a Lagos consumer, NBC is liable to Lagos State for the Use Tax, i.e., tax on the use, storage, or consumption of personal property in Lagos State.


In this age of online and computer based transactions, Many smart shoppers can find bargains online, but don't realize they can incur a tax bill in the process. California law requires tax on in-state purchases, and also requires tax on items purchased out-of-state for use in California. However, recent legislation now requires a “qualified purchaser” under California Revenue and Taxation Code (“CRTC”), section 6225 to be registered with Board of Equalization to report and pay use tax owed. Under this new legislation, a "qualified purchaser" means a person that meets all of the following conditions:

  • The person receives at least $100,000 in gross receipts from business operations per calendar year. Note: Gross receipts are the total of all receipts from both in-state and out-of-state business operations
  • The person is not required to hold a seller's permit or certificate of registration for use tax (under section 6226 of the Revenue and Taxation Code)
  • The person is not a holder of a use tax direct payment permit as described in section 7051.3 of the Revenue and Taxation Code
  • The person is not otherwise registered with the Board of Equalization to report use tax


The use tax, which was created in July 1935, is a companion to California's sales tax that is designed to level the playing field between in-state retailers who are required to collect tax, and some out-of-state retailers who are not. Use tax, just like sales tax, goes to fund state and local services throughout California. A use tax on interstate sales is “a tax on the privilege of use of property by the buyer” who purchases goods that would not otherwise be subject to a sales tax. (9 Witkin, Summary of Cal. Law (9th ed. 1989) Taxation, § 79, p. 100.) California imposes a use tax “on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer . . . for storage, use, or other consumption in this state . . . .” (CRTC, § 6201.) The tax is paid by the purchaser but is collected by the retailer. (CRTC, §§ 6202(a), 6203(a).) A retailer that fails to collect the appropriate use taxes becomes indebted to the state for the amount owed. (CRTC, § 6204.)


Since, the rationale behind the Use Tax is to prevent out-of-state retailers from gaining advantages over resident retailers so that the use tax “evens” the playing field, in sum, Lagos State can impose use tax on NBC.




As Nigeria struggles to become more relevant at the international level, and as Nigeria tries to align its economic growth with improvements in its political setting, the state of the tax laws in Nigeria must encourage influx of the much needed foreign currency. However, we must avoid the use of archaic and obsolete policies in deciding important landmark cases that may serve as veritable vehicles to launching Nigeria into the forefront of international economic positioning. Since time immemorial, taxes have always been defined as the “lifeblood” of a government,[4][4] with the primary purpose of which is:


“to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases.  This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible”[5][5]


The LSBIR v NBC case was an important opportunity to lay down tax policies and principles that may have served as launch-pads for exhaustive legislative changes to Nigerian tax laws.


Another opportunity will certainly come in the near future, we earnestly hope.


*Olumide K. Obayemi is from Ijebu-Jesa, Osun State, Nigeria and can be reached at
[1]. Black’s Law Dictionary, Eighth Standard Edition (Bryan A. Garner, ed. 2004).
[2]. Ibid. at 1499.
[3]. Ibid. at 1498-1499.
[4]. Benjamin D. Teodoro and Hector S. Cesareo A. de Leon, Law on Income Taxation 485 (1993 ed.).
[5]. Per QUISUMBING, J. in Philippine Bank of Communications v. Commissioner of Internal Revenue, et al., GR No. 112024 [1999] Decision delivered on January 28, 1999. Available at: Last visited on: September 4, 2007; See also, Napocor vs. Province of Albay, 186 SCRA 198 (1990), at p. 207.

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