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Market Digest Nigeria

Finance

Court voids Fed Govt’s power to collect VAT

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Court voids Fed Govt’s power to collect VAT, Income Tax

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The Federal High Court sitting in Port Harcourt, has declared that it is the Rivers State Government and not the Federal Inland Revenue Services (FIRS), that should collect the Valued Added Tax (VAT) and Personal Income Tax (PIT) in the state.

The court, presided over by Justice Stephen Dalyop Pam,  also issued an order of perpetual injunction restraining the Federal Inland Revenue Service and the Attorney-General of the Federation, both first and second defendants in the suit, from collecting, demanding, threatening and intimidating residents of Rivers State to pay to FIRS, personnel income tax and VAT.

Justice Pam made the declaration while delivering judgment in suit No. FHC/PH/CS/149/2020, filed by Attorney-General for Rivers State (plaintiff), against the FIRS (first defendant) and the Attorney-General of the Federation (second defendant).

The court, which granted all the eleven reliefs sought by the Rivers State Government, stated that there was no constitutional basis for the FIRS to demand for and collect VAT, Withholding Tax, Education Tax and Technology levy in Rivers State or any other state of the Federation.

Pam said the constitutional powers and competence of the Federal Government was limited to taxation of incomes, profits and capital gains, which did not include VAT  or any other species of sales, or levy other than those specifically mentioned in items 58 and 59 of the Exclusive Legislative List of the Constitution.

The judge dismissed the preliminary objections filed by the defendants that the court lacked the jurisdiction to hear the suit and that the case should be transferred to the Court of Appeal for interpretation.

Justice Pam, who also dismissed the objection raised by the defendants that the National Assembly ought to have been joined in the suit, declared that the issues of taxes raised by the state government were the matters of law that the court was constitutionally empowered to entertain.

He declared that after a diligent review of the issues raised by both the plaintiff and the defendants, the plaintiff had proven beyond doubt that it was entitled to all the 11 reliefs it sought in the suit.

The court agreed with the Rivers State Government that it was the state and not FIRS that was constitutionally entitled to impose taxes enforceable or collectable in its territory of the nature of consumption or sales tax, VAT, education and other taxes or levies, other than the taxes and duties specifically reserved for the Federal Government by items 58 and 59 of Part 1 of the Second Schedule of the 1999 constitution as amended.

The court, also declared that the defendants were not constitutionally-entitled to charge or impose levies, charges or rates (under any guise or by whatever name called) on the residents of Rivers and any state of the federation.

Among the reliefs sought by the Rivers State Government,  was a declaration  that the constitutional power of the Federal Government to impose taxes and duties was only limited to  items 58 and 59 of Part 1 of the second schedule of the 1999 constitution as amended.

The Rivers State Government also urged the court to declare that, by virtue of the provisions of items 7 and 8 of the Part II(Concurrent Legislative List) of the Second Schedule of the constitution, the power of the Federal Government to delegate the collection of taxes could only be exercised by the state government or other authority of the state and no other person.

The state had further asked the court to declare that all statutory provisions made or purportedly made in the exercise of the legislative powers of the Federal Government, which contained provisions inconsistent with or in excess of the powers to impose tax and duties, as prescribed by items 58 and 59 of the Part I of the Second Schedule of the 1999 constitution, or inconsistent of the power to delegate the duty of collection of taxes, as contained in items 7 and 8 of Part II of the Second Schedule of the Constitution, were unconstitutional, null and void.

The Lead Lawyer to Rivers State Government, Donald Chika Denwigwe (SAN), who spoke to journalists after the court session, explained that the case was all about the interpretation of the constitution in respect of the authority of the government at the state and federal levels to collect certain revenue particularly VAT.

He said: “So, during the determination of the matter, some issues of law were thrown up like, whether or not the case should be referred to the Court of Appeal for the determination of some of the issues.

“The court noted that the application is like asking the Federal High  Court to transfer the entire case to the Court of Appeal. In which case,  if the court so decides there will be nothing left to refer back to the Federal High Court as required by the constitution.”

According to Denwigwe, the court refused such prayer and decided that the case was in its proper place before the Federal High Court.

Speaking on the implication of the judgment, Denwigwe said it had become unlawful for such taxes like VAT in Rivers State to be collected by any agency of the Federal Government.

He said: “In a summary, it is a determination that it is wrong for the Federal government to be collecting taxes which are constitutionally reserved for the State governments to collect.

“The implication of the judgment is that the government (Federal and State) as an authority under the constitution, should be advised by the judgment that it is the duty of all government authorities to comply with and obey the law so long as the court has interpreted it and said what that law is.

“So, in other words, the issue of Value Added Tax (VAT) in the territory of Rivers State and Personal Income Tax should be reserved for the government of Rivers State.”

But the Lawyer to FIRS, O.C. Eyibo said he would study the judgment and advise his client.

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