Nigeria’s Federal High Court ruled that the Federal Government is not entitled to impose any form of sales tax including Value Added Tax (VAT). Based on this decision, the current position of the law is that the Federal Government of Nigeria lacks the power to enact any law relating to VAT or Sales Tax in Nigeria.
On 9 August 2021, Nigeria’s Federal High Court in Port Harcourt, Rivers State delivered a Judgment in the case of Attorney General for Rivers State (AG Rivers) versus Federal Inland Revenue Service (FIRS) & Attorney General of the Federation.
The Court ruled that FIRS is not entitled to demand for and collect VAT, Withholding Tax, Education Tax and Technology levy in Rivers State or any other state of the federation. The reason being is that the constitutional powers and competence of the Federal Government is limited to taxation of incomes, profits and capital gains, which does not include VAT or any other species of sales or levy other than those specifically mentioned in the 1999 Constitution ( Items 58 and 59 of Part I, Second Schedule, 1999 Constitution).
Based on this decision, the current position of the law is that the Federal Government of Nigeria lacks the power to enact any law relating to VAT or Sales Tax in Nigeria.
The FIRS had lodged an appeal against the above judgment and filed an application for stay of execution of the judgment as well asking the court for an injunction pending the determination of the appeal. FIRS also urged taxpayers especially those in Rivers State to continue to discharge their VAT obligations and disregard the Judgment. However, given that no injunction has been granted against the implementation of the Judgment , the position of the FIRS is not supported by the law.
Taxpayers who need a guidance on how to approach their VAT compliance obligations in the context of the current state of the law, are recommended to seek such specific guidance from professional tax advisors.
Source: Andersen Nigeria