OPINION: THE SUPREME COURT, LAGOS STATE AND VAT

BRIEF FACTS

Lagos claimed against the Federal Government as follows:
“That the House of Assembly of Lagos State of Nigeria is the body entitled, to the exclusion of any other legislative body, to enact laws with regard to the imposition and collection of tax on the supply of all goods and services within Lagos State of Nigeria and that the Lagos State of Nigeria, or any agency of the State, is the body entitled, to the exclusion of any other body, to assess and collect such tax, and that the revenue of the Lagos State Government has been and continues to be affected by the enforcement of the provisions of the Value Added Tax Act, Cap V1, Laws of the Federal Republic of Nigeria, 2004 (hereinafter referred to as ‘The VAT ACT’.”
Lagos State sought for the following reliefs:
“A declaration that the Value Added Tax Act Cap V1 Laws of the Federal Republic of Nigeria 2004 is, to the extent that it provides for the imposition and collection of taxes on goods and services in Lagos State (and other states of the federation), outside the legislative competence of the National Assembly and is therefore unconstitutional, null and void and of no effect whatsoever.
A perpetual injunction restraining the Federal Government of Nigeria by itself, its servants or any of its agencies from continuing to give effect to the provision of the said Value added Tax Act to impose and collect taxes on goods and services within the Lagos State of Nigeria.”
The Federal Government instead of confronting Lagos frontally, by going into the merits of the case, filed a preliminary objection on the grounds that (a) the cause of action relates to the acts of a federal organ and cannot form the basis of invoking the original Jurisdiction of the Supreme Court, which requires that the Supreme Court’s original jurisdiction can only be invoked in disputes arising between a State and the Federation or between States; (b) that the entire suit constitutes an abuse of court process and should be struck out.
The Supreme Court found that the thrust of the claim of Lagos State are encapsulated in the following paragraphs:
“… the Lagos State Government is entitled, to the exclusion of any other body, to collect any tax charged on the supply of all goods and services within the Lagos State of Nigeria under any law passed by the Lagos State House of Assembly and no other body or Government is entitled to a share of such tax may be collected.”
“The Federal Government continues, through it agents, to administer the Value Added Tax Act and to assess and collect tax thereunder with regard to the supply of goods and services within the Lagos State of Nigeria and within the territories of other States and distribute such tax in accordance with the fee sharing formula.”

The Supreme Court painfully came to a conclusion that the claim of Lagos relates to the revenue of the Government of the Federation, consequent upon which the taxes one of its agencies levies and/or seeks the interpretation of the Constitution as to how the operation of the Constitution affects the Federal Government or any of its agencies, is at the wrong court hence the Court declined jurisdiction.

ISSUES FOR DETERMINATION

Whether the Supreme Court’s original jurisdiction can be invoked considering the circumstances of this case.

ARGUMENT

The original jurisdiction of the Supreme Court is provided for under section 232(1) of the 1999 constitution; that for the original jurisdiction of the Supreme court to be invoked, the plaintiff’s claim must disclose a dispute between the federation and a state or states as constituent unit or units or between the states and the dispute must be one in which the existence of a legal right in their capacities as such is involved. See AG BENDEL V. AG FEDERATION (1982) 3 NCLR1,.AG KANO STATE V. AG FEDERATION (2007) 3 SC 59 @ 1.

The plaintiff in this case was seeking clarifications as to whether the VAT or consumption tax is within the purview of the exclusive power of the federal government or a matter within the purview of the residual power which the state government could make laws.The Supreme Court in the case of OGUN STATE v. ALHAJI ABERUAGBA [1984] SC 20 held, amongst others, that both the Federal and State Governments had the residual power to impose Sales Tax on any matter within their respective legislative competence.

The Supreme Court further held that only the Federal Government had the power to make Laws in respect of international trade and commerce and interstate trade and commerce while the State Government had the power to legislate on intra-state trade and commerce.

Further, the 1999 constitution do not confer exclusive jurisdiction over sales tax on the federal government. So it is a residual matter over which the state government could make laws.

The Supreme Court of Nigeria defined residual legislative competence in the case of Attorney General of OgunState v Aberuagba& 6 othersper Bello JSC:

By residual legislative powers…is meant what was left after the matters in the Exclusive and ConcurrentLegislative Lists and those matters which the Constitutionexpressly empowered the Federation and the States tolegislate upon had been subtracted from…. The Federation has no power to make laws on residual matters.With regard to taxation, the Exclusive Legislative list provides „items… (16) Customs andExcise Duties… (25) Export Duties… (58) Stamp Duties… (59)Taxation of incomes, profitsand capital gains…‟ are within the exclusive legislative competence of the Federal Government as represented by the National House of Assembly.

The Concurrent Lists also makes reference to „taxation of profits, incomes and capital gains in items 7 and 8.While the Constitution makes reference to „profits, incomes and capital gains‟ it is silent on„taxation of sales and or consumption.‟This implies that same is a residual matter withinthe exclusive legislative competence of the State House of Assembly;

the NationalAssembly therefore lacks the legislative competence to legislate on VAT and or any

consumption tax whatsoever.

Further the Plaintiff was challenging the constitutionality of the Value Added Tax Act and the illegality of the collection of tax pursuant to the Act. The Plaintiff’s grouse in the suit was not really about the act of the collection of these taxes by the F.I.R.S., an agency of the Federal Government, but rather on the legality or otherwise of the legislation on which the acts of the F.I.R.S. are founded. The Plaintiff, submitted that it has no dispute with the Federal Board of Inland Revenue which remains a mere agent but with the legislative competence of the Federal Governmentvis-a-vis the taxes collected by the Board. Were the Plaintiff’s quarrel to be in relation to the act of collecting this tax by Federal Government agent without more, it would have been impossible to bring Plaintiff’s claim within the purview of Section 232 (1) of the 1999 Constitution that provides for the Supreme Court’s original jurisdiction.

However, painfully the Supreme Court came to a conclusion that the claim of Lagos relates to the revenue of the Government of the Federation alone byits agency the Federal Board of inland Revenue , hence the Court declined jurisdiction. The court neglected and failed to address the fundamental   issue of competence of the Federal Government in legislating on consumption tax which form the basis of the suit.

The question now is when can the original jurisdiction of the Supreme Court be invoked. In the recent case of AG FEDERATION v. AG LAGOS:The federal government (before the Supreme Court) challenged the right of Lagos State to make laws on tourism specifically where the National Assembly had already legislated on the same issue through the NTDC Act. In this case the supreme court did not declined jurisdiction rather the apex court dismissed the federal government’s suit and delivered its judgment in favour of Lagos state. It was the view of the court that the NTDC Act went beyond its powers as stated in the Exclusive Legislative List of the Constitution which is to regulate “tourist traffic”. This effectively challenged the constitutionality of the NTDC’s powers to unilaterally regulate and control of hotels and tourism in Nigeria. The court therefore validated the respective laws of Lagos State.

The crux of the above stated case was that Lagos State Government had in 2009 enacted the Hotel Occupancy & Restaurant Consumption Law (HORCL) which places a consumption tax of 5% on personal services enjoyed in a hotel or restaurant or event centre. Such services include food and drinks. This consumption tax contained in the HORCL is similar to VAT, which is also 5% of the value of goods supplied or service rendered.

 In my humble view looking at the semblance of the two issues the Supreme Court has jurisdiction to entertain this suit.  According to M. T Abdulrazaq “ the just resolution in this matter was that this case was squarely within the provision of section 232(1) of the 1999 constitution that ....... the Supreme Court shall, to the exclusion of any other court, have jurisdiction in any dispute between the federation and the state…. It is clear like an IfaOpele, the Supreme Court has provided a solution to the dispute between Lagos State and the Federal Government of Nigeria. Was this appropriate solution in the circumstance? Frankly, I think not.”

CONCLUSION

Going by the provisions of the constitution it will be right to ask where does the VAT Act get its validity from since the Federal Government is only permitted to legislate on taxation of income, profits and capital gains?

Flowing from this, and as the Constitution is silent on which of the levels of Governments

has legislative competence with regards to consumption tax, it automatically falls into

residual category over which the States have exclusive legislative competence.

The Lagos State Government is therefore apt, by invoking the original jurisdiction of the of the Supreme Court, in filing an actionagainst the Federal Government asking the court to interpret the provisions of the Constitution to determine who has competence to legislate over the

imposition and collection of tax on the sales of goods and services. The suit also challenges

the validity of VAT.

A humble opinion is that the apex Court might not want to invalidate VAT in its entirety because of the instant financial disaster that would arise from nullifying a nationaltax law. Instead, the Court ought to havetow the path of its predecessors in Aberuagba’s caselimiting its scope to international and inter-State transactions and not declining jurisdiction in its entirety without addressing the substantive suit.

YinkaOlaiya