How the VAT War Triggered Restructuring


The decision of a Federal High Court sitting in Port Harcourt on the collection of Value Added Tax has obviously signalled the beginning of restructuring of the Nigerian federation, Gboyega Akinsanmi writes

The debate over restructuring of the Nigerian federation has been pervasive since the enthronement of democracy in 1999. The arguments had culminated in three different attempts to restructure the country’s federal structure, which a Professor of Political Science, Emeritus Professor John Ayoade, like other federalists, had described as lopsided and unprogressive.

The first attempt took place under the administration of former President Olusegun Obasanjo. In 2005, Obasanjo convened the National Political Reforms Conference in response to popular demands then. Also, former President Goodluck Jonathan convoked National Conference in 2014 under the late Justice Idris Kutigi to address imbalance and injustice that characterised the federal system.

In 2018, the All Progressives Congress (APC) set up a Committee on True Federalism to devolve more powers to the federating units.

None of these attempts made any significant change in the country’s governance structure. Since 1999 some states of the federation, especially Lagos State and recently Rivers State, have successfully challenged the constitutional powers of the federal government in areas of conflicting interest.

In Lagos, for instance, such attempts have resulted in key reforms, which the immediate past APC National Legal Adviser, Mr. Babatunde Ogala (SAN) argued, has strengthened Nigeria’s federal system. The attempts, according to him, have led to the enactment of Lagos State Lotteries Law, 2004; Lagos State Urban and Regional Planning and Development Law, 2005; Lagos State Waterways Authority Law, 2008; Wharf Landing Fees Law, 2009 and Hotel Occupancy and Restaurant Consumption Tax Law, 2009.

None of these laws, however, has revolutionised the country’s federal structure like the recent judgment of a Federal High Court sitting in Port Harcourt.

Based on the prayers of Rivers State, the presiding judge, Justice Stephen Pam declared that the Federal Inland Revenue Service (FIRS) “has no constitutional authority to enforce and administer taxes not expressly stipulated under Items 58 and 59, Part I, Second Schedule to the 1999 Constitution of the Federal Republic of Nigeria.”

Consequent upon the decision of the court, Rivers State House of Assembly passed a bill to enact the State Value Added Tax (VAT) Law No. 4 of 2021. The state governor, Mr. Nyesom Wike signed it into law on August 20, to end the authority of the FIRS to administer, collect and enforce the Value Added Tax Act, 2007 in Rivers State.

Origin of VAT Act

On August 24, 1993, precisely three days to the end of his regime, the Federal Military Government under Gen. Ibrahim Badamosi Babangida (rtd) promulgated the Value Added Tax Decree No. 102 of 1993. But the decree did not become effective until December 1, 1993 under the junta of the late tyrant, Gen. Sani Abacha.

At the time of its promulgation, the Babangida regime recognised that the VAT enforcement authority lied solely with the federating units. But the regime, by fiat, designated the FIRS as the enforcement authority on the grounds that the federating units lacked the capacity to collect VAT within their defined jurisdictions.

The VAT regime continued until the advent of the 1999 Constitution. Consistent with Section 315 of the Constitution, all the decrees, which fall directly with the purview of the federal government, became the Acts of the National Assembly.

In specific terms, the section states: “Subject to the provisions of this Constitution, an existing law shall have effect with such modifications as may be necessary to bring it into conformity with the provisions of this Constitution and shall be deemed to be an Act of the National Assembly to the extent that it is a law with respect to any matter on which the National Assembly is empowered by this Constitution to make laws …”

On this ground, the Value Added Tax Decree No. 102 of 1993 became Value Added Tax Act, 1993, retaining five per cent as the chargeable rate in 1996 under the Federal Military Government. Under the Obasanjo administration, however, the VAT Act, 1993 was amended twice, first in 2004 and also at the twilight of the administration in 2007.

Like Babangida, Obasanjo assented to the VAT Act, 2007 about four days to the expiration of his administration. Under the VAT Act, 2007, the chargeable rate of VAT was increased from five per cent to 10 per cent. However, the amendment stoked public disapproval, which compelled the late President Umaru Musa Yar’Adua’s administration to reverse it to five per cent on September 25, 2007.

Constitutional Justifications

Should the Value Added Tax Decree No. 102 of 1993 be an Act of National Assembly? Or should the National Assembly legislate on value added tax or consumption related taxes? The Federal High Court in Port Harcourt attempted to resolve these questions with emphasis on which level of government has the power to collect VAT within the ambit of the constitution.

Obviously, Section 4 of the 1999 Constitution has defined the legislative powers of the National Assembly and States’ Houses of Assembly. Under Part I, Second Schedule, the constitution recognises 68 items, on which the National Assembly can make laws for the purpose of good governance at the federal level.

Specifically, Items 58 and 59 on the Second Schedule further defined the taxing authority of the federal government. As these provisions suggest, the National Assembly cannot exercise its powers beyond legislating on matters on relating to stamp duties as shown on Item 58; taxation of incomes, profits and capital gains as indicated on Item 59.

Also, under Part II, Second Schedule, the 1999 Constitution lists 30 items on which the state Houses of Assembly can legislate. Likewise, the National Assembly can as well legislate on any item or matter under the Concurrent Legislative List. It is on these grounds that the Federal High Court declared that there “is no constitutional provision which grants the National Assembly power to make the VAT Act.” Obviously, as Ogala argued, VAT falls within the Residual Legislative List.

Also, the judgment is consistent with the decision of the Supreme Court when the Lagos State Government challenged the powers of the federal government to grant licenses and permits to organisations to build house and erect structures within its jurisdiction without its permission, prior knowledge or consent in 2003.

In this legal contest, the apex court held that any item “not expressly mentioned in the Exclusive Legislative List or Concurrent Legislative List is Residual and within the legislative competence of the state government.” This reinforces the power of sub-national governments as the enforcement authority of VAT or consumption related taxes.

Resort to Political Warfare

With one month, the FIRS lost the substantive legal battle to the Rivers State Government. Also, the court refused its application to stay execution of the judgment. However, it has filed an appeal to challenge the decision of the court, which former Attorney-General of Lagos State, Mr. Adeniji Kazeem (SAN) observed, entailed that all parties should wait for the decision of the appellate court on the dispute.

Rather than observing the rule of law, the FIRS has resorted to political warfare to retain its position as the designated authority of the VAT Act, 2007. In a statement by its Director of Communications and Liaison, Abdullahi Ahmad, the agency directed taxpayers in Rivers State to disregard the decision of the court and Rivers State VAT Law, 2021.

Also, after the court refused to stay execution of its judgment, the FIRS had, in a letter by its Executive Chairman, Mr. Muhammad Nami, requested the National Assembly “to sponsor a bill establishing Federal Revenue Court of Nigeria and insert VAT under Item 58 of the Second Schedule to the 1999 Constitution.”

The FIRS anchored its request to the National Assembly on eight grounds. First, as it claimed, the revenue court will provide the tax authority and taxpayers a platform for quick resolution of tax disputes. Second, it claimed the court would reduce time spent on the adjudication of tax matters. Third, among others, the Tax Appeal Tribunal should be converted to the Federal Revenue Court as the take-off point.

As shown in its four-page letter, the FIRS did not establish the constitutional basis to substantiate its authority to administer, collect, enforce the VAT Act, 2007.The request, obviously, suggests that there is no constitutional provision to support the appeal of the FIRS. Hence, it resorted to the National Assembly as a laid-back to reclaim the powers, which a constitutional lawyer, Dr. Mike Ozekhome (SAN) argued, the FIRS could not exercise within the ambit of the 1999 Constitution.

Domino Effects

The decision of the federal high court obviously strengthened the arms of the Rivers State House of Assembly to pass the Rivers State VAT Bill, 2021. It equally justified the resolve of the state governor to sign the bill into law, which a human rights lawyer, Mr. Femi Falana (SAN) claimed, did not contravene any provision of the 1999 Constitution.

But these decisions have started impelling domino effect among other states of the federation. As adopted under former US President Harry Truman, domino effect simply suggests the fall of a non-communist state to communism would precipitate the fall of non-communist governments in neighbouring states.

Consistent with the arguments of domino theorists, the Lagos State House of Assembly has enacted its own legislation to enable it administer, collect and enforce value added tax or consumption related taxes. With the conclusion of the legislative process on Thursday, Lagos State Governor, Mr. Babajide Sanwo-Olu will assent to the bill any moment.

Likewise, Ekiti State has kick-started the process of legislating its own statute to enable it administer, collect and control its own VAT and assume the role of the enforcement authority. A senior lawyer, Mr. Ebun-Olu Adegboruwa (SAN) has justified the state laws on value added tax, which according to him, are a form of restructuring.

Adegboruwa, also, argued that the laws would redefine the country’s feeding-bottle federalism and the tradition Abuja financial pilgrimage for betterment. Human rights activist, Mr. Femi Falana (SAN), too, shared Adegboruwa’s standpoint. For him, the decision of the federal high court has confirmed the struggle for restructuring through litigation and will strengthen the campaign for restructuring.


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