Issues in the VAT Legal Tango


    By Onikepo Braithwaite

    Last week, I read a news report in which the Gombe State Commissioner for Finance appealed to Lagos and Rivers State to be their “ brother’s keeper” as far as the VAT (Value Added Tax) sharing formula is concerned, and more or less, ‘temper justice with mercy. Unfortunately, Suit No. FHC/PH/CS/149/2020 AG Rivers State v FIRS & AGF is presently not a family matter, but a legal one! Therefore, I shall examine the highlights of this issue from a legal point of view (carefully, because it is sub judice).


    The Rivers State Government (RSG) by way of Originating Summons, approached the Federal High Court, Port Harcourt Division, seeking the determination of some constitutional questions, inter alia, the interpretation of Items 58 & 59 on the Exclusive Legislative List Part I Second Schedule to the Constitution, and whether the Federal Government had the power to delegate the FIRS to collect certain taxes like VAT by virtue of the said provisions of Items 58 & 59. An action is commenced via means of an Originating Summons inter alia, when a party “claiming….any legal or equitable right under…. an enactment….for the determination of any question of construction under the instrument and for a declaration of the rights of the persons interested”. The reliefs granted in an Originating Summons, are declaratory. The court declared inter alia, that the FIRS is not empowered to collect VAT.

    Armed with the favourable decision of the court, the Rivers State House of Assembly went ahead to swiftly pass its Value Added Tax Law No. 4 of 2021 (VATL), to enable them commence the collection of their VAT. FIRS then applied for a stay of execution of the judgement of the Federal High Court, which the court refused to grant, on the ground that the courts are bound to obey laws that are duly enacted (VATL), and that granting a stay would amount to overruling (or is it negating) the decision that it had already handed down. See the case of Nwabueze v Nwosu 1988 4 N.W.L.R. Part 88 Page 257 on the established principle that a successful litigant should be allowed to enjoy the fruits of his success.

    The FIRS immediately appealed against the decision, filing a stay of execution of the decision of the Federal High Court and a motion for interlocutory injunction, while LSG (Lagos State Government) filed an application for joinder as a Respondent in the matter, in the interest of justice. Though the Appellant has not moved its applications, nor has the LSG’s motion for joinder been heard, last Friday, the Court of Appeal sitting in Abuja, ruled that all the parties in the matter should refrain from taking any action that would give effect to the decision of the Federal High Court, pending the determination of the applications. In other words, the Court of Appeal granted a temporary stay of execution without actually hearing the application for one, citing the need to preserve the ‘res’, that is, the subject-matter of the suit. Can a declaratory judgement be stayed? judgement be stayed? What is the res in this case?

    The grant of a stay of execution of a judgement is discretionary. See Igwe v Kalu 1993 4 N.W.L.R. Part 285 Page 1. But, generally, factors that are considered in the grant of such an application include special circumstances, or the fact that the res may be destroyed and would render the appeal negatory if a stay is not granted; and the Applicant must show the existence of a legal right. See Vaswani Trading Co. v Savalakh & Co. 1972 7 N.S.C.C. Page 692 at 695; Irukwu v T.M.I.B. 1997 12 N.W.L.R. Part 531 Page 113 at 127.
    The matter was however, adjourned to Thursday for the determination of the pending applications. Meanwhile, the Lagos State House of Assembly also speedily passed their own Value Added Tax Law last Thursday, and it was assented to by the Governor on Friday morning as well.

    The Position of the Law

    Section 1(1) of Constitution declares its supremacy and bindingness on all authorities and persons throughout Nigeria, including the Federal Government, the Courts and the FIRS, while Section 1 (3) provides that any law that is inconsistent with the provisions of the Constitution, shall be void to the extent of its inconsistency. See AGF v Abubakar 2007 8 N.W.L.R. Part 1035 Page 117 at 144 on the supremacy of the Constitution, and the fact that the grundnorm is not a mere Act or law. In AG Ondo State v AGF 2002 9 N.W.L.R. Part 772 Page 222, the court held that “…once the powers, rights and the limitations under the Constitution are identified as having been created, their existence cannot be disputed in a court of law”.

    Items 58 & 59 on the Exclusive Legislative List of the Constitution (that is items assigned solely to the Federal Government by the Constitution, for legislation upon by the National Assembly (NASS)) which cover taxes – while mentioning Stamp duties, taxes of incomes, profits and capital gains, do not mention VAT; nor is VAT mentioned on the Concurrent Legislative List, which both Federal and State can legislate upon. The well known principle in statutory construction, “Expressio unius est exclusio alterius’ is applicable here – that is, the rule that ‘the inclusion of the one, is the exclusion of the other’ – ‘when one or more things of a class are expressly mentioned, others of the same class are excluded’. I submit that, it is obvious from the constitutional provisions, that VAT is excluded from Items 58 & 59 of the Exclusive Legislative List and Item 7 of the Concurrent Legislative List, and therefore, does not come under the Federal Government’s control. Ergo, it is a Residual matter, falling squarely under the purview of the States alone.

    Simply put, constitutionally speaking, it is ultra vires the FIRS to collect VAT, the reason being that VAT is a matter for the State Houses of Assembly to legislate upon, and consequently, the State tax collection agencies or whoever the State delegates so to gather. See SC. 340/2010 AGF v AG Lagos in which the Supreme Court held that the Federal Government lacks the constitutional powers to legislate upon matters that are on the Residual Legislative list, and are the responsibility of the States.

    So, to the extent that a law like the Taxes and Levies (Approved List for Collection) Act 1998 (TLA) (already nullified by the Court of Appeal for its inconsistency with the Constitution in Uyo Local Government Council v Akwa Ibom State Government & Anor 2020 LPELR-49691 (CA)) in Section 4 Part I First Schedule to Section 1 of the Act provides that VAT should be collected by the Federal Government (the Federal Board of Inland Revenue or now, the FIRS), this provision is inconsistent with Items 58 & 59 of the Exclusive Legislative List, and is therefore, null and void and of no effect. Similarly, Section 7 of the Value Added Tax Act 1993 (VATA), which provides that VAT shall be administered by the Federal Board of Inland Revenue, suffers the same fate of nullity as the above-mentioned TLA provision, by virtue of its inconsistency with the Constitution. See the case of Imonikhe v AG Bendel State 1992 23 N.S.C.C. Part II Page 480 at 491 per Nnaemeka-Agu JSC where his Lordship stated thus: “Any act which infringes or runs contrary to those organic principles or systems (in the Constitution), is said to be unconstitutional”. See also Alhaji Nuru Bani Gaa v Alhaji Ishola Are Ogele SC.96/1998 18 N.W.L.R. Part 852 Page 251 per Pats-Acholonu JSC who held thus: “To suggest that the provision of the Constitution should be construed subject to the prescription of an inferior statute, is a legal apostasy…..Any law inconsistent with such provisions would have done violence to the spirit of the organic and primary law, and therefore, to the extent of such inconsistency, is null and void and of no effect…”.

    Based on the foregoing, as the law stands today, it is difficult to fault the decision of the Federal High Court, as it is a proper interpretation and application of the Constitution with regard to VAT.

    An amendment of the Constitution would therefore be required, to include VAT on the Exclusive Legislative List, for it to be lawful for the FIRS to collect VAT. It is trite law that the Constitution cannot be amended by the provisions of any law, but only by the means provided for in Section 9 thereof. In this scenario, it means that the TLA and VATA (which are existing laws by virtue of Section 315(1) of the Constitution), or any other law or Federal Government directive or practice, cannot serve as constitutional amendments that can be used to insert VAT onto the Exclusive Legislative List; and the offending sections of the said statutes which I already cited above, must be brought into conformity with the Constitution, as a result of their inconsistency.

    Specifically, by virtue of Section 9(2) of the Constitution, for the purpose of amendment, there must be a proposal to include VAT on the Exclusive Legislative List in the Senate and the House of Representatives, and this proposal must be supported by votes of not less than two-thirds majority of all the members in each House of NASS, and approved by resolution of the Houses of Assembly of not less than two-thirds of all the States, that is, 24 States. The fact that the Constitution is constantly being observed in its breach by Government and its agencies with regard to many matters, does not or cannot confer constitutionality, lawfulness or correctness on such matters.

    A pertinent question to ask, is what the effect of the newly enacted VAT laws of both States which empower them to collect VAT is on this controversy, since the laws are not the subject-matter of any litigation and are valid and subsisting?


    That the decision of the Federal High Court in this matter, is one that promotes fiscal Federalism is unarguable. But, there are many who are against this decision, and argue that it may put States who depend on ‘sharing’ of the VAT of others for part of their survival, into financial jeopardy. Their concerns are not unfounded.

    However, those on the other side of the divide, believe that this practice of the FIRS collecting VAT into a central pool and sharing it, is unconstitutional, unfair and inequitable to the States that generate the highest amounts of VAT, because they are deprived of their own revenue which can be used to develop their own State infrastructure, just so that other States can be propped up – ‘robbing Peter to pay Paul’, is what this practice has been described as by many. They believe that this practice should be jettisoned, and items like minerals removed from the Exclusive Legislative List and left as Residual matters, so that States can harness their own resources and dramatically increase their IGRs and VAT, instead of depending on others.

    My dear Readers, kindly, share your opinion on whether this VAT controversy is a family matter, which should be resolved amicably and holistically by negotiation and love, of course, along with other thorny issues which have not been brotherly in nature, but instead, have been a source of discord amongst Nigerians. For instance, as Governor Wike of Rivers State has publicly complained – is it equitable for States who prohibit and destroy alcoholic beverages, to be allowed to enjoy the revenue generated from the sale of alcohol in other States? Are those who argue that if the Federal High Court judgement is not upheld, we will be moving further away from true Federalism, correct? Or should the law be allowed to take its course, no matter the cost? What are your views?


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