Judicial Attitude Towards The Validity Of Value Added Tax In Nigeria

Value Added Tax (“VAT”) is a direct/ consumption tax that has been embraced globally because tax authorities perceive it as relatively easy to administer and difficult to evade. VAT has been one of the most consistent, stable, and highest yielding sources of tax revenue for the Nigerian government, and statistics reveal that VAT has contributed NGN1.108 trillion, NGN1.19 trillion NGN1.5 trillion to the Nigerian economy in the years 2018, 2019, and 2020 respectively . To further bring the tax in terms of the country’s economic realities and perhaps global practices, vide the Finance Act 2019, the VAT rate in Nigeria was increased from 5% to 7.5%.

On December 11, 2020, the Federal High Court of Nigeria, Port Harcourt Judicial Division, held, in the case of Emmanuel Chukwuma Ukala v. Federal Inland Revenue Service (FIRS), 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 does not extend to VAT. In the said decision, the Court declared the Value Added Tax Act null and void to the extent of its inconsistency with the Constitution of the Federal Republic of Nigeria, 1999 (as amended) (“CRFN”).

Interestingly, on August 9, 2021, in another matter, Attorney General for Rivers State v. Federal Inland Revenue Service & ANOR , the Federal High Court held that there was no constitutional basis for the Federal Inland Revenue Service to demand and collect VAT, Withholding Tax, Education Tax and Technology levy in 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 did not include VAT.

However, it remains rather puzzling to note that a fundamental source of national revenue such as VAT is surrounded by so much uncertainty as to its validity and constitutionality. For specificity, the validity of VAT has been a contentious issue, especially in the light of Consumption/ Sales Tax imposed by some States of the Federation. This issue has been a subject of litigation in different courts up to the Supreme Court and the various judgments have reflected the divergent views on the subject.

Given the gravity of the pronouncements made in these cases as well as other similar far-reaching pronouncements on the question of the validity of VAT, there is a genuine curiosity to analyse the reasoning behind the pronouncements of the Courts, the actual tenor of Nigerian Law on the subject and the potential implications of these decisions on the continued administration of VAT in Nigeria.

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