IN a Public Notice recently issued by the Lagos State Internal Revenue Service (“LIRS”) to clarify the definitions of hotels, event centres and restaurants in Section 17 of the Hotel Occupancy and Restaurant Consumption Law, 2009, (“Consumption Tax Law” or the “Law”), the LIRS mandated the managements of these facilities to charge consumption tax on their bills and invoices and remit the tax to the LIRS on or before the 20th day of each calendar month in a format prescribed by section 6 of the Law. The LIRS in the said Notice also reiterated its intention to commence enforcement of the Law by imposing prescribed sanctions for non-compliance with the Law. In this article, we examine the validity and enforceability of the Consumption Tax Law in the light of judicial decisions on the point.
The powers of the different tiers of government in Nigeria to impose tax is derived from the Constitution of the Federal Republic of Nigeria, 1999 (as emended) (the “Constitution”) and are delineated by the Taxes and Levies (Approved List for Collection) Act, Cap. T2, Laws of the Federation of Nigeria, 2004 (the “Taxes and Levies Act”). The validity of any tax will therefore depend on whether the power to impose the tax is traceable to the Constitution and the Taxes and Levies Act.
Pursuant to its powers under the Exclusive and Current Legislative Lists of the Constitution, the National Assembly enacted the Taxes and Levies Act which, in its Schedule prescribes the taxes that are collectible by the different tiers of government. By Section 1(2) of the Act, the Minister of Finance is empowered to amend the Schedule to the Act and in exercise of this power, the Minister of Finance, by Order titled Taxes and Levies (Approve List of Collection) Amendment Order dated 26 May 2015 (the “Amendment Order”) amended the Schedule to the Act to include Hotel, Restaurant or Event Centre Consumption Tax as one of the taxes that are within the powers of the State Governments to impose and collect. This seems to provide a legal framework for the imposition of consumption tax by States. Subsequent to the Amendment Order, the Government of Lagos State issued the Hotel Occupancy and Restaurant Consumption (Fiscalization) Regulations 2017 (the “Regulations”).
Prior to the enactment of the Amendment Order which expressly placed Hotel, Restaurant or Event Centre Consumption Tax under the powers of the States, the powers of the States to impose the tax had been a subject of controversy and the Minister may have sought to settle the controversy by clarifying the powers of the States to impose the tax by the Order. However, it turned out that the Amendment Order rather than settle the controversy, is now part of the controversy.
So far, there have been several judgments bothering on the validity of the efforts of the Lagos State Government to impose and collect tax on goods supplied and consumed in hotels in the State, but the controversy is far from been resolved.
In AG Lagos State v. Eko Hotels Ltd & Anor (2017) LPELR-43713(SC)., the Supreme Court held that:
the sales tax imposed by the Government of Lagos State under the Sales Tax Law Cap.175 Laws of Lagos State 1995 and Sales Tax Amendment Order 2000) was akin to Value Added Tax;
the Value Added Tax Act (“VAT Act”) has covered the field and the Sales Tax Law cannot be enforced side by side with the VAT Act; and
that the administration of the Sales Tax Law and the VAT Act will result in double taxation. In effect, the Supreme Court held that as long as the VAT Act is in force, the Sales Tax Law was unenforceable. The Court however did not pronounce on the validity of the Sales Tax Law because the validity of the Law was not an issue before the Court.
It is important to note that the taxes imposed under the Sales Tax Law and the Consumption Tax Law are the same in nature and content. The taxes only differ in nomenclature and scope. Therefore, the above judgment will apply equally to both sales tax and consumption tax.
However, in The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) v Attorney-General of Lagos State & Federal Inland Revenue Service, the Federal High Court, per Aikawa J. held that the consumption tax imposed and chargeable on goods and services supplied or consumed in hotels, restaurants and event centres within Lagos State is valid and enforceable and that the VAT Act which imposes VAT on all non-exempt goods and services in Nigeria is inapplicable to goods and services supplied by or in hotels, restaurants and events centres in Lagos State. In this case, the Plaintiffs claimed the following reliefs from the Court:
That the VAT Act has covered the field in respect of consumption tax on all goods and services supplied in Nigeria;
That the Hotel Occupancy and Restaurant Consumption (Fiscalization) Regulations 2017, made pursuant to the Hotel Occupancy and Restaurant Consumption Law of Lagos State (the “Lagos Consumption Law”) is inapplicable to the Plaintiffs;
That the FIRS is the only lawful and competent agency vested with constitutional powers to assess and collect consumption tax in respect of goods and services supplied in Nigeria.
In dismissing the suit, the Court held that consumption tax is within the Residual Legislative List of the Constitution and therefore within the legislative competence of the States and by virtue of Section 4(7) of the Constitution, the Taxes and Levies Act and the Taxes and Levies Amendment Order, the Government of Lagos State is the only lawful authority to impose and collect consumption tax on goods and services supplied and consumed in hotels, restaurants and event centres in Lagos State.
This decision, in our opinion, is questionable in several respects. First, it is in direct conflict with the decision of the Supreme Court in AG Lagos State v. Eko Hotels Ltd & Anor (supra) where the Court expressly held that the VAT Act has covered the field and that the Lagos State Consumption Tax Law cannot be enforced simultaneously with the VAT Act. Secondly, the reasoning of the Court that consumption tax is a residual matter and within the legislative competence of the Government of Lagos State also runs against the mill of judicial precedent. In MTN Communications Nigeria Limited v. The Abia State Government & Ors (2019) LPELR-46652(CA), the Court of Appeal held that the powers of the different tiers of government to impose tax have been circumscribed by the Constitution and the Taxes and Levies Act and that a State cannot impose any tax which has not been provided for in the Taxes and Levies Act. The Abia State of Nigeria Infrastructural Development Fund Law of 2010 was therefore declared null and void to the extent of its inconsistency with the Taxes and Levies Act.
However, notwithstanding the merits of the judgment, the judgment is binding until set aside. We understand that the judgment has been appealed by the FIRS. But pending a determination of the Court of Appeal in favour of FIRS, the judgment remains valid. The decision may have therefore settled the controversy on the validity of consumption tax, albeit temporarily.
But the Federal High Court has added a new twist to the confusion in The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) v Attorney-General of the Federation and the Minister of Finance. The Federal High Court, per Faji J. held in this case that: (i) amendment of legislation is a law making power that is exclusively reserved for the Legislature by the Constitution; (ii) the Taxes and Levies Act which empowers the Minister of Finance to amend the Schedule to the Act is inconsistent with the Constitution and it is void to the extent of the inconsistency and (iii) the Amendment Order which was issued in furtherance of the Taxes and Levies Act is void. This judgment has in effect voided the hotel, restaurant and event centre tax and all other taxes that were introduced by the Amendment Order.
We observe that the cases of The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) v Attorney-General of the Federation and the Minister of Finance and The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) v Attorney-General of Lagos State & Federal Inland Revenue Service are not on the same issues. While the earlier case was on the validity and enforceability of the Consumption Tax Law and the Regulations, the latter case was in respect of the constitutionality of section 1(2) of the taxes and Levies Act and the Amendment Order that was made pursuant to the Act. Nevertheless, the Judgment of Faji J. in the latter case has a direct bearing on the validity of the Consumption Tax Law and the Regulations. It is noteworthy that one of the grounds on which Aikawa J. upheld the validity of the Consumption Tax Law and the Regulations was that the Government of Lagos State was empowered to impose and collect the tax by virtue of the Amendment Order. The nullification of the Amendment Order therefore takes out one of the sources of validity of the Consumption Tax Law and the Regulations. To that extent, the decision conflicts with the judgment of Aikawa J. which upheld the validity of the Consumption Tax Law and the Regulations. But what is the implication of this conflict?
The law is settled that where there are two conflicting decisions of courts of co-ordinate jurisdiction, the latter decision prevails. This position was reiterated by the Court of Appeal in Ansa v. R.T.P.C.N. (2008) 7 NWLR (Pt.1086) 421 at 442-443, paras. H-A (CA) where the Court, per Omokri, JCA held that “where there are conflicting judgments of courts of equal jurisdiction over a subject matter in dispute, the rule is that the decision that is later in time operates as a bar and it represents the correct position of the law.” Therefore, the judgment of Faji J., to the extant that it declares the Amendment Order which empowers the States to impose and collect consumption tax void represents the current position of the law and overrides the judgment of Aikawa J. which upheld the Consumption Tax Law and the Regulations on the basis of the Amendment Order.
But the Consumption Tax Law was not upheld by Aikawa J. solely on the basis of the Amendment Order, but also on the Constitution. The Court reasoned that since consumption tax is neither in the Exclusive nor Concurrent List, it is in the Residual List and therefore within the legislative remit of the States. Even though this reasoning and conclusion does not conform with precedent, it remains valid until set aside. To that extent, it serves as a thread that could sustain the judgment, notwithstanding the latter judgment of Faji J. until set aside by the Court of Appeal or the Supreme Court.
But can the LIRS proceed with enforcement of the tax pending the determination of the appeal against the judgment of Aikawa J.?
As a general rule, an appeal does not operate as a stay of execution. The Supreme Court has however held that the rule does not give any licence, directly or indirectly, for the issue and execution of any processes which may ultimately be offensive and that reliance on the rule to issue any inopportune execution will amount to an abuse of court process. We note that the judgment in question is declaratory and cannot be executed. The note of caution by the Supreme Court will however apply equally to declaratory judgments and it may be inappropriate for any party to take any steps on the basis of a judgment on appeal, pending the determination of the appeal.
On that note, the bid by the LIRS to commence enforcement of the consumption tax pending the determination of the appeal against the judgment of Aikawa J. upholding the validity of the Consumption Tax Law and the Regulations may be ill-timed and hasty. The best course is for the LIRS to stay any enforcement until a decision on appeal is delivered. To stimy the attempted premature enforcement, the FIRS may file an application for junction pending appeal (if none has been filed) to expressly restrain the LIRS from implementing or enforcing the Consumption Tax Law and the Regulations pending the determination of the appeal.
Written By Agbada S. Agbada, Associate, Streamsowers & Kohn, email@example.com
It is our hope that the Court of Appeal will clear the fog around the validity of consumption tax.
 See Item 59 of the Exclusive List and Item 7 of the Concurrent List.
 Unreported judgment delivered by Hon. Justice R. M. Aikawa of the FHC on October 3, 2019 in Suit No: FHC/L/CS/360/2018.
 Curled from Banwo and Ighodalo, “Validity of Consumption Taxes Imposed by State Governments in Nigeria: Has the Federal High Court Decision in Hotel Owners Case Settled the Controversy?” https://www.banwo-ighodalo.com/grey-matter/validity-consumption-taxes-imposed-state-governments-nigeria-federal-high-court-settled-controversy.
 Suit No. FHC/L/CS/1082/2019 (Unreported).
 See Josiah Cornelius Ltd & Ors v. Ezenwa (1996) LPELR-1632(SC).
 Mohammed v. Olawunmi & Ors (1993) LPELR-1898(SC).
By Agbada S. Agbada
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