By O. G. Ogbom, Esq.
Taxation is recognized as a very important tool for development and growth in most societies. One of the major indices by which development and growth can be measured in any society is the amount of wealth, which is created by economic activities undertaken in that society. Again, one of the means of the creation of wealth for citizens is through meaningful employment, so that citizens are able to earn income to cater to their needs and also contribute taxes to the government as part of their contributions to government programs.
In this regard, taxes do not only provide sustainable revenue for government to carry out its activities and provide development to its citizens, it also puts citizens in the role of stakeholders, who are directly contributing to national development. One of those taxes that provide sustainable revenue is Value Added Tax(VAT), hence the issues.
Value Added Tax is a consumption tax that has been embraced by many countries world over. Because it is a consumption tax, it is relatively easy to administer and difficult to evade. Value Added Tax (VAT), is a tax on spending. The tax is borne by the final consumer of goods and services because it is included in the price paid. It is at a flat rate of 7.5% and collected on behalf of the Government by businesses and organizations which have registered with Federal or States Inland Revenue Services for VAT purposes in line with the recent cases.
Available data shows that VAT has contributed ₦5.5 trillion respectively in the last three years of, 2018, 2019, and 2020. Notwithstanding its major contribution to national revenue, the validity of VAT has been a contentious issue especially in the light of Consumption/Sales Tax imposed by some States of the Federation. This has given rise to litigation in different courts up to the Supreme Court and the various judgments have reflected the divergent views on its validity or otherwise.
Unlike the 1999 constitution, the 1979 Constitution omitted sales or consumption from the taxing powers under both the Exclusive and Concurrent Lists, this gave an indication that taxation of sales and consumption was a matter reserved for the States to legislate and administer. Flowing from the assumption, some States legislated and administered sales tax laws, this was not unchallenged as was seen in AG Ogun State v. Aberuagba(1985) 1 NWLR(Pt.3) 395, where the Supreme Court stated categorically that the Sales Tax Law of Ogun State was invalid as it encroached the Exclusive Legislative powers of the Federal Government. The Court of Appeal, however, upheld the Lagos State Sales Tax Law in Nigerian Soft Drinks v. Attorney General of Lagos State(1987)2NWLR(Pt.57)444, when it stated that the Lagos State Law si not enacted to tax items covered in the Exclusive Legislative List. This continued until the VAT Act was introduced in 1993 to replace the Sales tax laws of the States.
As regards VAT and the 1999 constitution, the Supreme Court in Attorney General of Lagos State v. Eko Hotels and Another(36) TLRN 1 (Eko Hotels Case), the Supreme Court held that the VAT Act, being an enactment of the National Assembly, had covered the field on the issue of Sales Tax and must prevail over the Sales Tax Law of Lagos State. Accordingly, this upheld the validity of the VAT Act and its supremacy over Sales / Consumption taxes introduced by the States.
The validity of Value Added Tax (VAT) as it relates law practice and whether it is one of the items under exemption, was again tested In AL-MASEER LAW FIRM vs. FIRS(2019) 12 NWLR (Pt. 1687) 555@573. By an originating summons, the appellant as plaintiff sought from the Federal High Court to determine whether or not by virtue of the provisions of Section A 8 of the Value Added Tax Act Cap. VI 2004 (as amended), Legal Practice is a business venture and thus is required to register with Federal Inland Revenue Service Board for the purpose of collecting Tax as its agent and remitting the amount collected on monthly basis. Whether or not a Legal Practitioner duly called to the Nigerian Bar and who practices as such falls within the class of persons contemplated under Section 46 of the VAT Act Cap VI 2004 (as amended), to bring him under any obligation to render VAT return in compliance with section 15 of the Act.
In determining the issues, the Court held that the Act (VAT), does not limit itself to only suppliers of goods but extends the duty of collection and remission of VAT to also those who only supply services. A lawyer or firm of lawyers in private practice undoubtedly supplies legal services to the public for a fee and so caught by this provision and bound to charge and remit to respondent value added tax as stipulated by the Value- Added Tax Act on the fees they charge their clients.
Flowing from the AL-MASEER’s decision, It has to be noted that the case did not challenge the constitutionality of the power of the National Assembly to legislate on VAT and also delegate the FIRS to collect VAT. The case borders on whether Legal Practice is a business venture and thus, is required to register with Federal Inland Revenue Service Board for the purpose of collecting Tax as its agent and remitting the amount collected on monthly basis.
This decision by the Court of Appeal as regards Legal Practice being a business venture without a proper definition of the authority that can legislate on VAT matters may have prompted the Federal Inland Revenue Service to issue Emmanuel Chukwuka Ukala, SAN, a tax audit exercise for Value Added Tax dated 12 February 2020, titled “E. C. Ukala & Company tax audit exercise for(2013-2018 accounts), addressed to the Managing Partner, E. C. Ukala & Company, Port Harcourt, Rivers State.
Upon the service of the tax audit, E.C. Ukala, SAN, immediately approached the Federal High Court Port Harcourt. to ask whether upon a proper construction and interpretation of the provisions of item 59 of the Second Schedule, Part 1(Exclusive Legislative List of the1999 constitution and item 7(a) & (b) of Part 11 of (Concurrent Legislative List) of 1999 cfrn, the legislative competence of the National Assembly to impose tax and delegate the powers of collection of taxes, includes the power to levy or impose any form of Sales tax including Value Added Tax or any other form of levy. If the power can be exercised for the purposes of delegating the duties to any other person other than the government of a State or other authority of the State. That by virtue of items 58 and 59 cited hereinabove, the Federal Inland Revenue Services is only Limted to taxation of incomes, profits and capital gains tax which does not include Value Added Tax or any other species of Sales tax. He went on to argue that E.C. Ukala & Company, is not a limited liability company or a company formed under Part 11 of the Company and Allied Matters Act, Laws of the Federation and accordingly not subject to the taxing authority of FIRS among other issues.
The Court in determining the issues, held that the incomes of the plaintiff do not come within the purview and scope of income arising and derived from the operations of a limited liability company and therefore, the only and relevant tax Authority obligated by law and vested with the capacity and jurisdiction to demand Tax Audit from the plaintiff, is the Rivers State Board of Internal Revenue.
The Court went on to hold that Company Income Tax, Value Added Tax, Technology Tax and Education Tax, are all within the purview and scope of Rivers State Board of Internal Revenue and not Federal Inland Revenue Services.
The judgement in E.C. Ukala v FIRS & anor. was again expanded in AG Rivers vs FIRS & anor. Where the Court, which granted all the eleven reliefs sought by the Rivers State Government, stated that there is no constitutional basis for the FIRS to demand for and collect VAT, Withholding Tax, Education Tax and Technology levy in Rivers State or any other State of the Federation, being that the constitutional powers and competence of the Federal Government is limited to taxation of incomes, profits and capital gains which does not include VAT or any other species of sales, or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the Constitution.
Having x-rayed the issues, it must be noted that this is not the first time the Court is making far-reaching decisions with respect to Value Added Tax (VAT).
In the Registered Trustees of Hotel Owners and Managers Association of Lagos v. A. G. Federation Unreported judgment delivered by Hon. Justice R. M. Aikawa of the FHC in Suit No: FHC/L/ CS/360/201, the court invalidated some of the provisions of the VAT Act. But in Ukala v. FIRS, the court nullified the VAT Act. In A.G. Rivers v. F.I.R.S., the court did not only nullify the VAT Act but also empowered the States to impose, demand and collect VAT, Withholding Tax, Education Tax and Technology levy within Rivers State.
In what appears to be a conflicting judgements, the Federal High Court in Incorporated Trustees of Kogi State Hoteliers Association v. Kogi State Board of Internal Revenue, FIRS & Another. SUIT NO: FHC/LKJ/CS/58/2018, in its judgement bordering on VAT still held thus:
By Section 4 of the 1999 Constitution, the National Assembly has power to make laws for the Federal Government for collection of taxes. The Value Added Tax Act is an existing law by virtue of the Constitution. That by virtue of section 7 of the Value Added Tax Act, the body empowered to manage VAT Tax is the Federal Board Inland Revenue. That in line with the constitution and since Value Added Tax is tax law of National Assembly, the inconsistent of Kogi State taxation of Consumable Goods and Services (in Hotels, Restaurant, etc.) law 2015 is void to the extent of its inconsistency.
It is recommended that the issues and/or judgements discussed in this article should be quickly entertained and decided upon by the Appellate Courts to avoid the confusion and quagmire faced by tax payers as a result of the conflicting judgements by court of co-ordinate jurisdiction. It is my opinion that since the judgements in Ukala & AG Rivers appear to have addressed partly some of the issues that have to do with restructuring as being canvassed, the National Assembly should seize the opportunity to give it a constitutional flavor to show sincerity on the part of the Federal government.
O. G. Ogbom, Esq, LL.M, is a Partner with Law Freight Attorneys, Port Harcourt, Rivers State.