Sales Tax versus VAT: Supremacy - Case Law Review

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Monday, June 25, 2018   02.20PM / Oserogho & Associates
 

Introduction

The controversy over States’ Inland Revenue Services and the Federal Inland Revenue Service (“FIRS”) imposing Consumption Tax on the same goods and services, and at the same tax rate, contemporaneously, has remained a matter of much concern and litigation.

 

In the law suit of Attorney General of Lagos State v. Eko Hotels & FBIR (2017) 12 SC (Part 1) 107, the Supreme Court had to consider the question of whether or not it amounted to double taxation for State and Federal Consumption Tax to be imposed on the same tax base? i.e. the same goods and services.

 

The following highlights are provided regarding the Supreme Court’s decision on the question of the tax authority of States and Federal Governments when it comes to Consumption Tax.

 

Law Review – Sales Tax vs. VAT – Issue for Determination

In the case of Attorney General of Lagos State v. Eko Hotels & FBIR (2017) 12 SC (Part 1) 107 now under review, Eko Hotels sought a judicial determination as to whether Eko Hotel should remit the Sales Tax that it collects from its customers to the Lagos State Inland Revenue Service (“LIRS”) as required by the Lagos State Sales Tax Law and the Lagos State Sales Tax (Schedule Amendment) Order 2000; or remit the Sales Tax collected to the Federal Inland Revenue Service (“FIRS”) as required by the provisions of the Value Added Tax Act.

 

Decision of the Supreme Court – A. G. Lagos State v. Eko Hotels & FBIR

Compared to previous decisions of the Supreme Court, where this Court held that State Governments have the constitutional authority to pass Consumption Tax Laws, the Supreme Court in the case of Attorney General of Lagos State v. Eko Hotels & FBIR (Supra) held that the constitutionality or otherwise of the Lagos State Sales Tax Law and the Lagos State Sales Tax (Schedule Amendment) Order, 2000 were not being challenged by Eko Hotels. The decisions in Attorney General of Ogun State v. Aberuagba, Nigerian Soft Drinks Limited v. Attorney General of Lagos State, among other cases, were distinguishable from this Eko Hotel case by the Supreme Court.

 

The Supreme Court then proceeded to hold that both the Value Added Tax Act and the Lagos State Sales Tax Law were applicable to the same class of goods and services; and at the same tax rate. This factual situation the Supreme Court held amounted to double taxation which is an unhealthy and confusing way to purposeful governance.

 

To prevent double taxation, the Supreme Court relied on Section 4(5) of the 1999 Constitution (as amended) to hold that as the Federal Value Added Tax Act already covered the field of taxing goods and services consumed, the Lagos State Sales Tax Law and Regulations must remain in abeyance or temporarily suspended until the Federal Value Added Tax Act is amended, repealed or abrogated. The Supreme Court accordingly directed Eko Hotels to remit all the consumption taxes that it has collected, from its customers, to FIRS.

 

Doctrine of Covering the Field

The Doctrine of Covering the Field, is a constitutional law provision which stipulates that where any provision of a State Law is inconsistent with an existing Federal Law, or the provisions of the State Law are already catered for in the Federal Law, the State Law on the same subject shall be suspended or remain in abeyance until the Federal Law is amended or repealed.

 

Conclusion

The Supreme Court’s decision in Attorney General of Lagos State v. Eko Hotels & FBIR (Supra) has far reaching legal implications to existing State Consumption Tax Laws. This is because Section 4 (5) of the 1999 Constitution (as amended) and Sections 1, 2, 8, 10, 14, 15 and 16 of the Value Added Tax Act remain subsisting Laws in our statute books, which have sufficiently covered the subject of consumption tax on goods and services in both State and Federal Jurisdiction.

 

It is very instructive to also mention that States with Consumption Tax Laws are already beneficiaries to consumption tax collections under the Federal Value Added Tax Act; albeit and arguably inequitably.

 

As commendable as the Supreme Court’s decision in Attorney General of Lagos State v. Eko Hotels & FBIR (Supra) may be, only an amendment of the 1999 Constitution and the Value Added Tax Act, making any form of Consumption Tax in each State of the Federation, a State regulated matter, will it be said that true and practical federalism are being applied to the subject of Consumption Tax. Without such a constitutional amendment, the enforcement of consumption tax by both State and Federal agencies, on the same tax base, and at the same tax rate, will be inimical to the growth of the economy. 

 

Disclaimer

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NB: This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This Alert, by itself, does not create a Client/Attorney relationship. Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed. This Legal Alert is protected by Intellectual Property Law and Regulations and is reproduced by Proshare Nigeria Limited under permission, for the Proshare online investment community, from Oserogho & Associates [ contactus@oseroghoassociates.com ]

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