The Federal Court of Nigeria, headed by the Port Harcourt Department under the chairmanship of His Lordship Hon. Judge Stephen Dalyop Pam, issued a 45-page judgment on August 9, 2021 in a case brought by the Rivers State Attorney General against the Federal Inland Revenue Service and the Attorney General of the Federation as 2nd defendant. In this case, the presiding judge disregarded all known taxation principles and the earlier court decision, which had previously overruled the constitutionality of the VAT Act. His lordship indirectly amended the 1999 Constitution of the Federal Republic of Nigeria, as amended, effectively placing all tax laws under the control of the plaintiff, the Rivers State.
The plaintiff asks the court to invalidate the Value Added Tax Act, the Higher Education Tax Act (incorrectly called education tax by the plaintiff), the income tax, and the Stamp Duty Act as unconstitutional. Pages 1 through 33 of the judgment dealt only with the proceedings filed and exchanged by the parties and the preliminary objection of both Defendants 1 and 2 regarding the association or subordination of parties and the question of the jurisdiction of the court for the Processing of the application. The preliminary rulings were rightly decided in favor of the plaintiff and are therefore not required for this examination.
The judgment of the Court of Justice can be summed up in two sentences. (1) The power of the National Assembly to enact tax laws is limited to the taxation of profits, income and capital gains, as in item 7 (a) and (b) of Part II of the Second Annex to the Constitution and (2) the Federal Tax Act, the Income Tax Act, the Value Added Tax Act, the Act on Taxes and Duties (Approved List for Collection), among others, are null and void because the tax laws are not expressly stated in Sections 58 and 59 of the Exclusive Legislative List
(ELL) of the Constitution.
The judgment has five (5) fundamental shortcomings, outlined as follows:
(1) His Lordship has wrongly limited the powers of the National Assembly to make tax laws to Articles 58 and 59 of the ELL. The powers of the National Assembly to legislate go beyond the points of the ELL. The ELL contains 68 elements, but only four (4) elements are specifically identified as taxes. So, if this judgment is to be taken seriously, it means that all other tax laws (z ELL are null and void. Again, His Lordship did not consider item 68 of the ELL, which states that ‘Any matter that appears elsewhere in this list For example, the Tertiary Education Trust Fund (mistakenly referred to as “Education Tax” by the Plaintiff and his Lordship) is derived from 2% of the taxable profits of all companies operating in Nigeria, excluding those of companies in The question now is, if point 59 of the ELL includes taxation of profits and 2% of company profits are deferred as “education tax”, why should such a law be void for the flimsy reason not specifically mentioned be declared? in the constitution?
(2) Another fundamental shortcoming of the plaintiff, which was not noticed by his lordship, was that the plaintiff did not invoke a state law similar to the value added tax law. Had such laws existed, the problem of double taxation might have arisen. Even with such a constitutional law, his lordship’s decision would not have been justified. His lordship would have the case AG Lagos State v. Eko Hotels Ltd & Anor ((2018) 36 TLRN 1, in which the Supreme Court ruled that the VAT Act covers the area and the VAT Act cannot be enforced as that will lead to double taxation. Although the State of Lagos later did the Enacted Hotel and Restaurant Consumption Act and cleverly imposed a 5% tax on goods consumed in hotels and restaurants in Lagos State. Even with this act, the Federal Court of Justice in The Registered Trustees of Hotel Owners and Managers Association of Lagos v. Attorney-General of Lagos State & Federal Inland Revenue Service (Application No .: FHC / L / CS / 360/2018) did not declare the entire VAT Act null and void, only exempted goods consumed in the premises of hotels, restaurants and event centers in the state of Lagos from VAT on the grounds that items consumed in hotels and restaurants are not included in the value added tax law fell.
(3) In this case, His Lordship did not consider the teaching to cover the field either. Section 4 (5) of the Constitution provides that if a law passed by the House of Assembly of a state is inconsistent with a law in force by the National Assembly, the law passed by the National Assembly takes precedence and that other laws, to the extent of the inconsistency, are void . His lordship should have dismissed the plaintiff’s case as there was no such state law in Rivers State to compete with the Sales Tax Act, the Capital Gains Tax Act, and the Income Tax Act
(3) The judgment is also contradicting itself. In one breath, His Lordship agreed that the power of the National Assembly to make tax laws is limited to the taxation of profits, income and capital gains as set out in Articles 58 and 59 of the ELL and Articles 7 (a) and (b ) are included. of Part II of the second appendix to the Constitution. In another breadth, the court made a U-turn and granted all of the plaintiff’s requests, including a statement that education taxes and technology taxes will be levied (that is, taxes on the profits of corporations regulated under the Corporate and Allied Matters Act, 2020) are registered, a federal law, unconstitutional, null and void.
(4) Another fundamental flaw found in the judgment is the plaintiff’s first prayer to declare that the plaintiff is entitled to the authority to collect capital gains tax, income, or profits from any person in the state of Rivers obtain. This relief should also have been deleted. At this stage his lordship should have distinguished between the power to collect a tax and the power to collect taxes. The current provision in our tax law states that income tax, capital gains tax, and stamp duty are federal laws imposed by the federal government, while the 36 states have the power to collect taxes on individuals in their respective jurisdictions and the state Rivers is no exception to this rule, wondering the need for this relief as it is contained in the judgment of the court.
(5) The court also did not take into account Section 25 of the Federal Tax Administration Act of 2007, according to which the service is authorized to administer all ordinances listed in the first annex of the Act that contain the Sales Tax Act, Capital Yield Tax Act and Income Tax Act.
However, the division of taxation powers in the 1999 Constitution does not reflect the principle of federalism. It is a design that is unsuitable for Nigeria’s growth. It is safe to conclude that Nigeria is a unified system disguised as federal. However, this nonsense cannot be cured by a court decision, but by a constitutional amendment.
Kolawole Oyekan is a writer from the University of Warwick, UK. He can be reached by email at [email protected]