A novel legal battle is about to commence on who is actually the custodian of the Value Added Tax (VAT) following an appeal by the Federal Inland Revenue Service (FIRS), contesting the recent judgment of the Federal High Court that ceded the power to collect tax on goods and services to the states of the federation.
Already, the FIRS has sought an injunction for Stay of Execution of the said judgment pending the hearing of the appeal on the issue which has recurred for the third time.
The controversial issue on which two courts had previously ruled against the FIRS, came to the fore again with the recent ruling of the Federal High Court, Port Harcourt, Rivers State which retrieved the power to collect VAT from the Federal Inland Revenue Service (FIRS) and placed it with the Rivers state.
Justice Stephen Pam in its ruling also restrained FIRS and the Attorney-General of the Federation, both 1st and 2nd defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, both PIT and VAT.
Justice Pam in his judgment in the suit by the Attorney-General for Rivers State against FIRS and AGF granted all the 11 reliefs sought by the Rivers Government.
He held that there was no constitutional basis for the FIRS to demand and collect VAT, Withholding Tax, Education Tax and Technology Levy in Rivers or any other state of the federation, being that the constitutional powers and competence of the Federal Government was 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.
Director, Communications and Liaison Department, Abdullahi Ismaila Ahmad, however, in a statement Sunday noted that the FIRS is contesting the ruling which has stirred discourse on who is actually empowered to be the custodian of VAT in the country.
The FIRS appeal came on the heel of the decision by the Chartered Institute of Taxation of Nigeria (CITN) that it would take an “informed position” on the matter after studying the certified true copy of the judgement, stating that the ruling by the Rivers State Federal High Court was the third of such. He stated that two courts had previously declared some provisions of the VAT Act unconstitutional.
Ahmad said, “This is to inform the general public that the Federal Inland Revenue Service has lodged an appeal against the judgment of the Federal High Court Port Harcourt Judicial Division delivered by Honourable Justice Stephen Pam, in SUIT NO. FHC/PH/CS 149/2020-Attorney-General of Rivers state v. FIRS & Another”.
“As the decision is being appealed and in view of the pending applications for injunction and stay of execution which the FIRS has filed in court against the judgement, members of the public are advised to continue to comply with the Value Added Tax obligations until the matter is resolved by the appellate courts in order to avoid accruing the consequent penalties and interest for non-compliance.”
CITN last Wednesday cautiously said it will await the CTC of the ruling before commenting on the issue which its Registrar, Adefisayo Awogbade, noted has recurred after two courts had declared some provisions of the VAT Act unconstitutional, noting that the Rivers case was “not the first time”.
The two previous cases are, the Registered Trustees of Hotel Owners and Managers Association of Lagos v. A. G. Federation, in which the court invalidated some of the provisions of the VAT Act,” while the second was the case between Ukala v. FIRS, in which the court also nullified the VAT Act.
“As soon as we receive the certified true copy of the judgement, our legal advisers will study it and advise us accordingly,” the statement further reads.
“When that is done in the next few weeks, the Institute will take an informed position, and the public will be duly communicated.
“We are mindful of our statutory mandate as a tax regulatory professional Institute, and we will not shirk our responsibility to the public in all matters relating to taxation in Nigeria”, Awofeso stated on the issue which could take away a large portion of FIRS generation and functions.
Justice Pam in his ruling agreed with the Rivers Government that it was the state and not FIRS that is constitutionally entitled to impose taxes enforceable or collectable in its territories like consumption or sales tax, VAT, education and other taxes or levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended.
The court declared that the defendants were not constitutionally entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on residents of Rivers and indeed any state of the federation.
Rivers State Government had asked the court to declare that the constitutional power of the Federal Government to impose taxes and duties was limited to items listed in items 58 and 59 of Part 1 of the Second Schedule of the 1999 Constitution (as amended).
The state government also urged the court to declare that by virtue of the provisions of items 7 and 8 of Part II (Concurrent Legislative List) of the Second Schedule of the Constitution, the power of the Federal Government to delegate the collection of taxes can only be exercised by the state government or other authority of the state and no other person.