The Federal High Court (FHC) in Port Harcourt recently ruled that only the Rivers State Government (RSG), and not the Federal Government (FG),is empowered to collect value-added tax (VAT) within Rivers State.
Specifically, the FHC held that the RSG is constitutionally entitled to impose taxes within Rivers State, in the nature of consumption or sales tax, VAT, education tax and other taxes, charges, rates or levies, not specifically reserved for FG in the Exclusive Legislative List (ELL) in the Constitution of the Federal Republic of Nigeria, 1999 (as amended) (“the Constitution”).
The FHC also held that the FG must delegate the administration and collection of any tax relating to capital gains, income, or profit and dutiable instruments ofpersons other than companies, to the State Governments (SGs).
The Attorney General (AG) of RSG had filed a suit in 2020 seeking eleven (11) reliefs to the effect that there is no constitutional basis for the Federal Inland Revenue Service (FIRS) to demand and collect VAT, withholding tax, education tax and technology levy in Rivers State or any other State of the Federal Republic of Nigeria (“the FRN”). In the suit, the RSG’s AG noted that the Constitution empowers the FG to legislate only taxes specifically mentioned in items 58 and 59 of the ELL.
The FHC granted all reliefs sort by the AG of the RSG. Consequently, FHC granted a perpetual injunction restraining the FIRS and the Attorney General of the Federal Republic of Nigeria, from collecting, demanding, threatening and intimidating residents of Rivers State to pay VAT to FIRS.
We expect that the ruling will be appealed by the FIRS and the AG of the FRN at the Court of Appeal as this will significantly impact compliance, administration and potentially pose the risk of double taxation across Nigeria.
Until that happens, there are a couple of questions that are begging answers: