AN ANALYSIS OF THE FEDERAL HIGH COURT’S DECISION IN THE CASE OF A.G RIVERS STATE V. FIRS
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INTRODUCTION
The recent judgement of the Federal High Court as regards the power of the Federal Government to levy, impose and collect Value Added Tax does not seem to bode well for the latter. The Federal Government has always been beset by the problem of revenue deficit.[1] This is borne out of the fact that, under the country’s monolithic economy, the success of the country’s move to generate revenue is predicated on the stability of oil prices in the international market.[2] Already, the arrangement is such that 50% of the accrued Valued Added Tax goes to the States, 35% to the Local Governments while the Federal Government gets 15%.[3] In the light of the judgement of the Federal High Court, it cannot be gainsaid that the Federal Inland Revenue Service (FIRS) will be facing an uphill task in exacting remittances of the revenue from States who may have become emboldened to contest its authority.
Although it may be argued in support of the judgement that the interpretation of the constitution accords with the principles underpinning the concept of true federalism, this paper examines this groundbreaking decision of the Federal High Court and the reasoning for the decision.
BACKGROUND AND PRELIMINARY ISSUES OF THE CASE
The Plaintiff had, by an Originating Summons, sought the interpretation of the Court as regards the legality of the Federal Government to collect Value Added Tax (VAT). Both Defendants, the Federal Inland Revenue Service and the Attorney General of the Federation filed Notices of Preliminary Objection challenging the jurisdiction of the Federal High Court. The 2nd Defendant’s Notice, which was first considered by the court, objected on the ground that the proper Defendant was not before the court. The 2nd Defendant argued that the National Assembly ought to be joined as a party and that the subject matter of the suit fell within the Exclusive Jurisdiction of the Supreme Court. Accordingly, the court was urged to decline jurisdiction over the suit and strike it out.
The 1st Defendant’s Notice of Preliminary Objection was predicated on the ground that the Plaintiff failed to serve the 1st Defendant with a Pre-Action Notice as required by Section 55(3) and (4) of the Federal Inland Revenue Service (Establishment) Act 2007. The 1st Defendant also averred that the suit was an abuse of court process (because it was a rehash of Suit No. FHC/PH/CS/30/2020: Emmanuel Chukwuka Ukala, SAN v. Federal Inland Revenue Service & Anor) and that it was improperly commenced by Originating Summons. The court in “striking out” the objection of the 2nd Defendant held that the suit was within the ambit of jurisdiction of the Federal High Court based on Sections 251(1) (a), (b), (p), (q), & (r) of the 1999 Constitution. The court also disagreed with the 1st Defendant as to the subject matter of the suit. The court believed the suit was not a challenge to the legislative competence of the National Assembly but a quest for clarification as regards the operation of the tax laws, because of which the 1st and 2nd Defendants were proper parties.
In resolving the issues raised by the Preliminary Objection of the 1st Defendant, the court considered Section 55(3) of the FIRS Act and held that the requirement of Pre-Action Notice did not apply to suits filed against the 1st Defendant in its corporate name but rather to suits against the officers of the Service such as the Executive Chairman, Board Members etc. The court also discountenanced the argument of the 1st Defendant that the suit was an abuse of the court process. According to the court, the parties and the subject matter in both cases considered were not entirely the same. As regards the question bordering on the improper mode of commencement of an action, the court believed the suit was competent because it involved the interpretation or application of the 1999 Constitution. The court held, for good measure, that even if the mode of commencing action was incompetent, it could ask the parties to file pleadings and hear the suit like one commenced by a Writ of Summons. It is instructive to note that the 1st Defendant, in addition to its Preliminary Objection, filed a Motion for case reference to the Court of Appeal according to Section 295(2) of the 1999 Constitution. The Court of Appeal dismissed this application on the ground that it was lacking in merit.
DETERMINATION OF THE MAIN SUIT
In considering the Originating Summons, the Court considered Item 58 and 59 of the Second Schedule, Part 1 of the 1999 Constitution. The Second Schedule contains the Exclusive Legislative List, over which the Federal Government through the National Assembly, may exercise legislative competence, to wit:
58. Stamp Duties.
59. Taxation of incomes, profits, and capital gains, except as otherwise prescribed by the constitution.
The Plaintiff contended that the power vested on the Federal Government to make law and demand or collect taxes is limited to the provision in Item 58 and 59 of the Second Schedule. Therefore, the imposition of taxes such as the Value Added Tax (VAT), Withholding Tax, Technology Tax and Education Tax by the Federal Government is ultra vires the powers of the Federal Government and therefore null and void.
In response to the argument of the Plaintiff, the 1st Defendant relied on several provisions of the 1999 Constitution to wit: Sections 4(1)-(4) (a) & (b), 315(1) (a), 318(1), and Items 62, 67 and 68 of the Second Schedule, Part 1 of the 1999 Constitution and Sections 1, 2(a) of Part 3 (Supplemental and Interpretation) of the 1999 Constitution. The 1st Defendant argued that, by a combined reading of these provisions, it becomes obvious that the National Assembly is vested with the power to enact legislation to cover all the referenced taxes in the Plaintiff’s Originating Summons. The 1st Defendant also argued that the provisions of Items 58 and 59 of the Second Schedule of the 1999 Constitution could not override the provisions of the Sections of the 1999 Constitution. It is instructive to note that the Tax and Levies (Approved List for Collection) Act lists Withholding Tax, Education Tax, and the Value Added Tax as taxes to be collected by the Federal Government.[4] According to the 1st Defendant, the law; initially a decree promulgated by the Military Government, remained valid, by virtue of Section 315 (4) (b) of the 1999 Constitution which provides as follows:
‘existing law’ means any law and includes any rule of law or any enactment or instrument whatsoever which is in force immediately before the date when this section comes into force or which having been passed or made before that date comes into force after that date.
The 2nd Defendant argued that the powers of the Federal Government are not limited to Items 58 and 59 of the Second Schedule. The 2nd Defendant also argued that the Federal Government has not acted ultra vires its constitutional powers by imposing Value Added Tax (VAT), Withholding Tax, Education Tax and Technology Tax. It was the contention that except for taxes and levies provided for in Item 9, Part II, Second Schedule of the 1999 Constitution, the Plaintiff could not validly challenge the powers of the National Assembly, which is exercised based on Items 7 and 8, Part II, Second Schedule of the 1999 Constitution. It is important to note the provision of Item 7:
7. In the exercise of its powers to impose any tax or duty on-
(a) capital gains incomes or profits of persons other than companies; and
(b) documents or transactions by way of stamp duties
the National Assembly may, subject to such conditions as it may prescribe, provide that the collection of any such tax or duty or the administration of the law imposing it shall be carried out by the Government of a State or other authority of a State.
The court, in its judgement, adopted the issues put forth by the Plaintiff and stated that the provisions of Items 58 and 59 are clear, unambiguous and it is bound to give the provisions their literal and ordinary meaning. The court held that the Federal Government is only empowered to make law concerning Stamp Duties, taxation of incomes, profits and capital gains only. It could also not impose tax outside the scope of the designated taxes captured in Items 7(a) & (b) of the Second Schedule. Going further, the court also held that the Taxes and Levies (Approved List for Collection) Act which included Value Added Tax (VAT) as a Tax to be collected by the Federal Government was unconstitutional. This was in keeping with the doctrine of judicial precedent.[5]
CONCLUSION
The Federal Inland Revenue Service (FIRS) has appealed the judgement of the Federal High Court. The Service implored members of the public to continue complying with the Value Added Tax Obligations[6] However, consequent upon the judgement, the first course of action of the Rivers State Government has been to sign into law the bill on the Value Added Tax (VAT) collection in the State.[7] It is submitted that such a step taken by the Rivers State Government could pave the way for other states to follow suit. It is not wrong for States such as Rivers State which is among the biggest contributor of the Value Added Tax (VAT) to desire the right to solely administer the revenue from tax derived from its State.
The judgement, if affirmed by the Supreme Court, is sure to foster innovative thinking among States and make for more autonomous and viable federating units. This is because if States are to be given total control of the resources which are derived therein, other States would necessarily have to explore new ideas of generating more internal revenue. They either innovate or face the consequences. Already, by the administration of the Value Added Tax (VAT), the situation is such whereby some Northern States in Nigeria who have implemented Sharia Law and oppose the sales of Alcohol enjoy the Value Added Tax, reaped from such sales.
The intended consequence of this judgement,
however, is that the Federal Government may have to contend with the prospect
of diminishing revenue. Reports suggest that the Federal Government increased
the Value Added Tax (VAT) rate from 5% to 7.5% to fund the new Minimum Wage.[8]
That notwithstanding, the judgement does not bode well for a tier of government
that has become quite centralized and unwilling to yield any of its powers.
[1] https://www.stearsng.com/article/nigeria-has-a-revenue-problem
[2] Obasi Noble Okechukwu, The Oil Price Fall and the Impact on the Nigerian Economy: A Call for Diversification, Journal of Law, Policy and Globalization, Vol. 48, 2016, pg.85.
[3] Section 40 of the Value Added Tax Act
[4] Section 1, Part 1
[5] In Uyo Local Government v. Akwa Ibom State Government & Anor. (2021) 11NWLR (Pt. 1786) 1, the Court of Appeal declared as unconstitutional the Tax and Levies Act.
[6] https://punchng.com/firs-appeals-rivers-high-court-ruling-on-vat-collection/
[7] https://tribuneonlineng.com/wike-signs-bill-on-vat-collection-into-law/
[8] Russel Eastaugh, Oluwatoyosi Olakiigbe, Understanding the impact of the proposed increase in the VAT rate, pwc, Tax Bites.
