The Validity of Section 8 of The Value Added Tax Act Vis-à-vis Recent Judicial Pronouncements and the 1999 Constitution

By Francis Agunbiade


The Value Added Tax Act, CAP V1 LFN 2004 (VAT ACT) is a promulgation of the National Assembly set up to impose and charge Value Added Tax on certain goods and services and to provide for the administration of the taxation currently at 7.5%. In other jurisdictions, this is otherwise known as CONSUMPTION TAX or SALES TAX. It is instructive at this point to note that VAT was originally introduced in Nigeria with the enactment of VAT Decree No. 102 of 1993, which replaced the Sales Tax, which had been in operation since 1986 by virtue of the Federal Government Decree No. 7 of 1986. This was during the military era, when the nation was being run more or less like a Unitary state.

Section 8 of the amended Act deals with Registration for assessment and payment of the tax. It states:

(1) A taxable person shall, within six months of the commencement of the Act or within six months of the commencement of business, whichever is earlier, register with the Board for the purpose of the tax.
(2) Without prejudice to the provisions of section 32 of this Act, a taxable person who fails or refuses to register with the Board within the time specified in subsection (1) of this section shall be liable to pay as penalty an amount of-
(a) N10, 000 for the first month in which the failure occurs; and
(b) N5, 000 for each subsequent month in which the failure continues.

It is vital to note that the Board refers to the Federal Inland Revenue Service (FIRS); a Federal Government Agency created by Section 1of the Federal Inland Revenue Service (Establishment) Act (2007) to control and administer the different taxes and laws in Nigeria on behalf of the Federal Government. 


By virtue of Section 8 of the VAT Act, every taxable business through the proprietor is expected to register and remit funds to the FIRS. This Act appears contentious as it is not within the ambit of the Federal Government to collect VAT. Under the 1999 Constitution the powers of the Federal Government to collect taxes are listed precisely under the SECOND SCHEDULE PART 1 (EXCLUSIVE LEGISLATIVE LIST) Items 58 and 59. For ease of reference, the sections are reproduced below:

“58. Stamp Duties

59 Taxation of incomes, profits and capital gains, except as otherwise prescribed by this Constitution”

Under the 1999 Constitution (As Amended), the powers of the Federal and State Governments to collect taxes are listed under the SECOND SCHEDULE PART II (CONCURRENT LEGISLATIVE LIST) Item 7. For ease of reference, the section is reproduced below:

“7. In the exercise of its powers to impose any tax or duty on

  • Capital gains incomes or profits of persons other than companies, and
  • Documents or transactions by way of stamp duties

The National Assembly may, subject to such conditions as it may prescribe, provide that the collection of any such tax or duty or the administration of the law imposing it shall be carried out by the Government of a State or other authority of a State”.

It is trite to state that any Statute or Act in Nigeria that conflicts with any Section of the 1999 Constitution is ultra vires, as to the extent of that inconsistency. Section 8 (1) and (2) of the Value Added Tax Act is in clear conflict with the 1999 Constitution. Therefore, based on the Blue Pencil Rule, the conflicting Act shall be declared null and void, to the extent of its inconsistency. The principle of Blue Pencil Rule was explained by His Lordship, Michael Ekundayo Ogundare, JSC in AG ABIA STATE & ORS v. AG FEDERATION (2002) LPELR-611(SC) where it was applied to sever a part of a legislation that was good in the sense that it was valid, from the part that was bad, in that it was invalid. That is, the blue pencil is run over the part that is bad. If what remains of the impugned legislation, that is the part that is good, can stand, then it is applied. But if what remains cannot stand on its own, the impugned legislation is declared invalid.


In the Federal High Court, Port Harcourt Division, Justice Stephen Dalyop Pam on Monday, August 9, 2021 delivered a landmark judgment in Suit No. FHC/PH/CS/149/2020: ATTORNEY GENERAL OF RIVERS STATE VS FIRS & ATTORNEY GENERAL OF THE FEDERATION. The Plaintiff raised 4 issues for determination and 11 reliefs were sought in their Originating Summons. The crux of the suit was that the Rivers State Government prayed the court for a declaration to be constitutionally entitled to impose taxes enforceable or collectable in the territory of Rivers State of the nature of Value Added Tax 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. After pleadings were adopted, the Honourable Court stated on page 43 of the Judgment:

“If the framers of the 1999 Constitution intended to allow the Federal Government to impose and collect these taxes, they would have specifically mentioned them in the Constitution. Since this was not done, this Court lacks the power to do otherwise”.

Thus, the FIRS has no constitutional authority in collecting 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 was limited to taxation of incomes, profits and capital gains, which do not include VAT or any other levy, other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the 1999 Constitution (as amended).

While the Defendants approached the same Federal High Court with a Motion for Stay of Execution, the Rivers State House of Assembly speedily passed the Rivers State Value Added Tax Bill No. 4, 2021, which was immediately assented to by the State Governor on 19 August, 2021, thus becoming a valid law. By the time Justice Pam dismissed the Defendants’ Motion for Stay of Execution, which in any case was an attempt to invalidate a validly enacted State law; it became clear that a fundamental milestone has been reached in the quest for an equitable fiscal federalism in Nigeria.

Not that there were no earlier attempts to test the validity of the VATA 2007 in the law courts. In this regard, two cases readily come to mind. In a judgment delivered on 11 December 2020, at the Port Harcourt Division of the Federal High Court, in Suit No. FHC/PH/CS/30/2020: EMMANUEL CHUKWUKA UKALA V FIRS & ATTORNEY GENERAL OF THE FEDERATION Justice I. O. Oshomah nullified the VAT Act and held that the powers of the National Assembly to make laws imposing taxes is limited to the profits/income of persons/companies, capital gains and stamp duties on instruments, but definitely does not extend to VAT, which His Lordship  agreed with the Plaintiff counsels, to be Sales or Consumption tax under another name. This implies that the Section 8 of the Value Added Tax Act 2004 is null and void based on this judgment.

The second case was determined on 3 October 2019, in Suit No. FHC/L/CS/360/18: THE REGISTERED TRUSTEES OF HOTEL OWNERS AND MANAGERS ASSOCIATION OF LAGOS V. A. G. OF LAGOS STATE & ANOR, SUIT NO. FHC/L/CS/360/18, wherein Honourable Justice Rilwanu Aikawa, sitting in the Federal High, Lagos Division, in delivering a judgement pronounced that Lagos State is the only constitutional authority permitted to assess, impose and collect tax from customers for goods and services consumed in hotels, restaurants and event centres in the State. The Court thereby upheld the legitimacy of the Hotel Occupancy and Restaurants Consumption Law of Lagos State, which empowered the Lagos State Government to charge and collect Consumption Tax from hotels and other recreational centres within the State. This proved that Section 8 of the Value Added Tax Act 2004 was invalid as registration with the FIRS has no legal basis.


In conclusion, it has become clear that based on the 1999 Constitution (as amended) and the plethora of Judicial Pronouncements, only the States are empowered to assess and collect Value Added Tax. This has thus nullified the contentious Section 8 of the Value Added Tax Act, which requires every taxable business to be registered with the FIRS. It is early days yet to make conclusive remarks on the matter, but it is very evident that until the matter is finally determined by the Supreme Court of Nigeria, fiscal federalism and the attendant arguments for or against restructuring will be in the limelight for months to come.

Francis Agunbiade LL.B, B.L, ACIPM, ACIS is a Legal Practitioner practicing in Abuja.

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