A.G. RIVERS STATE V. FEDERAL INLAND REVENUE SERVICE & ANOR: ANALYSIS OF IMPLICATIONS OF JUDGMENT


Introduction

On 9 August 2021, the Federal High Court sitting in Port-Harcourt per Hon. Justice Stephen Dalyop Pam delivered a judgement which withholds the power of the National Assembly to make laws on Value Added Tax, Withholding Tax, Education Tax and Technology Tax and the power of the Federal Inland Revenue Service (FIRS) to administer the collection of taxes.

Background

On 24 September 2020, the Attorney General of Rivers State (AG Rivers) by way of originating summons brought a suit against the FIRS and the Attorney General of the Federation (AGF). The substance of the suit is, amongst others, to challenge the power of the Federal Government of Nigeria (FGN) to make laws for the purpose of taxation other than for stamp duties, taxation of incomes, profits and capital gains, and the power of the FIRS to enforce and administer laws inconsistent with, or in excess of the powers of the FGN to make laws.

Plaintiff’s Argument

In summary, the contention of the Plaintiff in the suit is that by virtue of Items 58 and 59 of the Second Schedule Part I of the 1999 Constitution (Items 58 and 59), the FGN lacks the powers to impose and collect taxes outside stamp duties and taxation of incomes, profits, and capital gains. It is also the Plaintiff’s case that the imposition of taxes such as Value Added Tax (VAT), Withholding Tax, Education Tax, and Technology Tax by the FGN are ultra vires the constitutional powers of the FGN and therefore null and void.

1st Defendant’s Argument

In summary, the contention of the 1st Defendant in the suit  is that from a community reading of Sections 4(1) –(4) (a) & (b), 315(1) (a), 318 (1), and Items 62, 67, and 68 of the Second Schedule, Part I of the 1999 Constitution, and Sections 1, 2(a) of Part 3 (Supplemental and Interpretation) of the 1999 Constitution, the National Assembly has expansive powers to enact legislations to cover all the referenced taxes in the originating summons. The 1st Defendant also argued that the provisions of Items 58 and 59 cannot override the provisions of sections of the 1999 Constitution and proceeded to argue that where there is a conflict or contradiction between the schedule and a section of an enactment, the section prevails.

2nd Defendant’s Argument

In summary, the contention of the 2nd Defendant in the suit is that the powers of the FGN as regard taxation is not limited to Items 58 and 59 and that the National Assembly is constitutionally empowered to enact laws, impose taxes, duties, and rates other than on corporate bodies within Rivers State. The 2nd Defendant also argued that the FGN has not imposed any tax or levy beyond its constitutional powers and that VAT, withholding tax, education tax, and technology tax are within the legislative competence of the National Assembly. The 2nd Defendant further submitted that the Plaintiff lacks the powers to VAT, withholding tax, education tax, and technology tax.    

The Federal High Court’s Decision  

The Court adopted the issues as formulated by the Plaintiff in the suit which include:

  • Whether the Federal Republic of Nigeria and the Federal Government of Nigeria are entitled to make laws for the purpose of taxation other than for taxation of incomes, profits, and capital gains, and if not, whether the 1st Defendant is entitled to enforce and administer laws inconsistent with, or in excess of the authority of the Federal Republic of Nigeria or the Federal Government of Nigeria to make laws?
  • Whether the legislative competence of the National Assembly to impose tax or duties on capital gains, incomes or profits of persons and on documents or transactions by way of stamp duties extends to and includes the power to levy or impose any form of Sales Tax including Value Added Tax or any other form of Levy and if so, whether the power of the Federal Republic of Nigeria to delegate the power of collection of taxes can be exercised for the purpose of delegating the duty to any other person other than the government of a State or other authority of a State?
  • Whether the Taxes and Levies (Approved List for Collection) Decree No. 21 of 1998, now Act, in so far as it purports to legislate in respect of the responsibility for collection of taxes and levies, assessment and collection of taxes other than  as provided for under as provided for under Items 58 and 59 of the Exclusive Legislative List (Second Schedule Part 1) and items 7 and 8 of the Concurrent Legislative List (Second Schedule, Part II), is not unconstitutional, null and void?

On Issue (i), the Court held that the 1999 Constitution has specifically designated the taxes that the Federal Government is empowered to impose and collect in Items 58 and 59 thereof and this must be read to exclude other species of taxes like VAT, withholding tax, education tax, and technology tax. The Court held that if the framers of the 1999 Constitution intended to allow the FGN to impose and collect these taxes, they would have specifically mentioned them in the Constitution. The Court further held that since this was not done, the Court lacks the power to do otherwise.  The Court resolved issue (i) in favour of the Plaintiff and against the Defendants.

On Issue (ii), the Court held that the provisions of Item 7 (a) and (b) of Part II, Second Schedule do not by any stretch of the imagination extend the legislative competence of the National Assembly to the imposition of any form of tax outside capital gains, incomes or profits of persons other than companies; and documents or transaction by way of stamp duties and that it does not empower the National Assembly to enact any law to impose any form of sales tax, including VAT and any other tax outside those specifically mentioned in Item 7 (a) and (b) of Part II, Second Schedule.

The Court further held that Item 7 (a) and (b) of Part II, Second Schedule is also unequivocal in limiting the entities to whom the National Assembly can delegate the power to collect such tax or administer the tax law to State Government or a State Government authority. The Court further held that any other person or entity apart from State Government or a State Government authority shall be null and void. The Court resolved issue (ii) in favour of the Plaintiff and against the Defendants.

On Issue (iii), the Court stated its awareness of the recent decision of the Court of Appeal in Uyo Local Government Council v. Akwa Ibom State Government & Anor. (2020) LPELR-49691 (CA) where the Court nullified the Taxes and Levies Act for being inconsistent with the provisions of the 1999 Constitution. The Court held that, based on the doctrine of judicial precedent, it will not hesitate to hold that Taxes and Levies Act is unconstitutional. The Court cited Mcfoy v. UAC (1961) 3 WLR 1405.

The Court further held that the Taxes and Levies Act being unconstitutional, any tax or levy provided for in the Act is automatically unconstitutional, null and void, except such tax is provided for by the 1999 Constitution or any other law validly made by a competent legislature. The Court also resolved issue (iii) in favour of the Plaintiff and against the Defendants.

Overall, the Court held that the suit has merit and consequently granted all the reliefs sought. The Court made no order as to cost.

Implications of the Judgement

The subject of tax is cardinal to every nation’s economy and as such any decision that would impact the tax regime in any society must, as a matter of fact, receive serious attention. The judgement under discuss comes with various implications to the Nigerian tax regime. Although the judgement is currently on appeal at the Court of Appeal, should the Court of Appeal uphold the decision of the Federal High Court, and the Supreme Court follows suit (in the likely event that the judgement is further appealed to the supreme court), then the judgment, as it stands, will have the following implications in Nigeria:

  • State Government or State Government Authority to collect Capital Gains Tax, Income or Profit Tax of persons other than companies and Stamp Duties within their respective territories

One of the implications of the judgement is that State Governments or other authority of the State Government will become entitled to collect and to exercise the powers to collect capital gains tax, income or profits tax of persons other than companies within their respective territories as well as the powers to collect stamp duties on documents or transactions within their respective territories and chargeable under Items 58 and 59 of the Exclusive Legislative List and Item 7 of the Concurrent Legislative List of the Constitution of the Federal Republic of Nigeria 1999 (as amended). In other words, to the extent that any legislation of the Federal Government of Nigeria through the National Assembly, Executive Order or by other means (including but not limited to (i) Federal Inland Revenue Service (Establishment) Act (ii) Personal Income Tax Act (iii) Value Added Tax Act (iv) Education Tax Act (v) Taxes and Levies (Approved List for Collection) Decree No. 21 of 1998 (now Act), among others) purport to delegate the powers to collect the taxes and duties chargeable under items 58 and 59 of the Exclusive Legislative List and item 7 of the Concurrent Legislative List of the Constitution of the Federal Republic of Nigeria 1999 (as amended) within the respective territories of the States, on individuals or person other than the respective State Governments, or its authority, the same is unconstitutional, null and void.

  • Federal Government of Nigeria through the Federal Inland Revenue Service (FIRS) can no longer impose and collect VAT, Withholding Tax, Education Tax, and Technology Tax in the respective States of the Federation

Another implication of this judgement is that the Federal Government of Nigeria through the FIRS can no longer impose, demand and collect Value Added Tax (VAT), Withholding Tax, Education Tax, and Technology Tax in the respective States of the Federation and the constitutional powers and competence of the Federal Republic of Nigeria and the Federal Government of Nigeria is now limited to the taxation of incomes, profits and capital gains which does not include Value Added Tax, Withholding Tax, Education Tax, Technology Levy or any other species of sales tax or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the Constitution. In other words, the constitutional power of the Federal Republic of Nigeria and the Federal Government to impose taxes and duties is now limited to the items listed in items 58 and 59 of Part 1 of the Second Schedule of the Constitution of the Federal Republic of Nigeria 1999 (as amended) which include:

  1. Stamp Duties; and
  2. Incomes, profits, and capital gains.
  • The Taxes and Levies (Approved List for Collection) Act now unconstitutional, null and void, to the extent of its inconsistencies with the 1999 Constitution

By virtue of the judgement, the Taxes and Levies (Approved List for Collection) Decree No. 21 of 1998 (now Act), in so far as it purports to legislate in respect of the responsibility for collection of taxes and levies, assessment and collection of taxes other than as provided for under item 58 and 59 of the Exclusive Legislative List of the Constitution of the Federal Republic of Nigeria 1999 (as amended), including the provisions therein in respect of Withholding Tax, Value Added Tax, Education Tax, Capital Gains Tax on non-residents of the Federal Capital Territory Abuja, etc. is unconstitutional, null and void.

  • Only States Governments are now entitled to impose Sales Tax, Value Added Tax, Education Tax, and other taxes and levies

By virtue the judgement, only State Governments are now constitutionally entitled to impose taxes enforceable or collectible in their respective territories of the nature of consumption or sales tax, value added tax, education tax, 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 Constitution of the Federal Republic of Nigeria  1999 (as amended) and as delimited by the provisions of items 7 and 8 of Part II (Concurrent Legislative List) of the Second Schedule of the Constitution of the Federal Republic of Nigeria 1999 (as amended). In addition, by virtue of the judgement, in so far as the Value Added Tax purports to impose, levy or authorise the demand and collection of Value Added Tax by the FIRS or any other agency of the Federal Government, it is unconstitutional, illegal, null and void.

  • Federal Government can no longer delegate to FIRS power to collect taxes

Another very notable implication of the judgement is that by virtue of the provisions of items 7 and 8 of Part II (Concurrent Legislative List) of the Second Schedule of the Constitution of the Federal Republic of Nigeria 1999 (as amended), the power of the Federal Republic of Nigeria and the Federal Government of Nigeria to delegate the collection of taxes can only be exercised for the purpose of delegating the duty of collection of taxes to the Government of a State or other authority of a State and no other person. In other words, FIRS will no longer be constitutionally entitled to impose, demand, and collect taxes in the territories of the respective States of the Federation. This duty will now shift to the Government of the State or the States Boards of Internal Revenue. In addition, by virtue of the judgement, all statutory provisions made or purportedly made in the exercise of the legislative powers of the Federal Republic of Nigeria, which contain provisions which are inconsistent with or in excess of the powers to impose tax and duties as prescribed by items 58 and 59 of Part 1 of the Second Schedule of the Constitution or inconsistent or in excess of the power to delegate the duty of collection of taxes as contained in items 7 and 8 of the Part II of the Second Schedule of the Constitution including, but not limited to (i) Federal Inland Revenue Service (Establishment) Act (ii) Companies Income Tax Act (iii) Personal Income Tax Act (iv) Value Added Tax Act (v) Education Tax Act; and (iv) National Information Technology Development Agency Act, among others are to the extent of their inconsistencies or excessiveness, unconstitutional, null and void.

  • FIRS and indeed the Federal Government of Nigeria are no longer entitled to charge or impose levies, charges, or rates (by whatever name called) on the residents of the respective States of the Federation.

Conclusion

It is beyond doubt that this judgement will have a rapid impact on the Nigerian tax regime. As it stands, the judgement constitutes a victory for the States of the Federation and a huge loss to the FGN and the Federal Republic of Nigeria. The overarching purport of the judgement as can be gleaned from the analysis above is that the bulk of the powers to administer and collect taxes in Nigeria has now been taken away from the FGN and reposed in the State Governments. It remains to be seen how this new development will impact the economy of Nigeria.               

Contact

Olayemi Anyanechi

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Managing Partner

Kehinde Adegoke

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