On 10 September 2021, the Governor of Lagos State, Mr. Babajide Sanwo-Olu signed into law, “the bill for a law to impose and charge Value Added Tax (VAT) on certain goods and services” (the Lagos VAT Law). Lagos State is the second State of the Nigerian federation to pass a VAT bill into law, after Rivers State. The Governor of Rivers State assented to the Value Added Tax Law No.4 2021 on 19 August 2021. The Rivers and Lagos States VAT legislations followed a ruling by Justice Stephen Pam of the Federal High Court sitting in Rivers State, restraining the Federal Inland Revenue Service (FIRS) from collecting VAT and Personal Income Tax (PIT) in the State.

Some key highlights of the Lagos State VAT Law include:

• the recognition of the Lagos State Inland Revenue Service (LIRS) as the administrator of the law, including collection pursuant to the law and accounting for the same; 
• registration obligation on non-residents who carry on business within the State;
• the rate at which VAT will be charged - 6% on the value of goods and services in the State; and
• the apportionment of revenue accruing from VAT between the state government (75%) and the local governments (25%).

The Court of Appeal suspends implementation of state VAT laws

Although the Federal High Court refused to grant a stay of execution of its judgment, the Court of Appeal sitting in Abuja has, pursuant to an application made by the FIRS, granted an injunction pending appeal, ordering parties to maintain the status quo ante. The Court of Appeal then adjourned the matter for arguments on the application for joinder by Lagos State Government and the application for a stay of execution by the FIRS. With this injunction, both Rivers and Lagos States are expected to desist from enforcing their VAT laws until the determination of the application for the stay of execution before the Court of Appeal.

In the meantime, some practical concerns for taxpayers have arisen.

Uncertainties for businesses

Even though the FIRS failed in its bid to obtain a stay of the decision of the Federal High Court, the FIRS has asked consumers and businesses to continue to remit their taxes to the FIRS until the Court of Appeal or the Supreme Court decides the matter. The basis for this position is the FIRS’ claim that its collection of VAT is backed by the VAT Act, Cap V1, LFN 2004. According to the FIRS, non-remittance of VAT to it, will amount to a breach of law. On the other hand, States like Rivers and Lagos already have statutes compelling the payment of VAT to their respective revenue authorities. Accordingly, businesses in these states are now at a crossroads, not sure which agency has prevailing authority over the collection of VAT.

Possible incidence of double taxation

Another possible concern for tax subjects is the incidence of double taxation that may arise as other States begin to pass their own versions of VAT laws. This is especially because by its nature, VAT is a consumption tax chargeable on value added at the various stages of production (or the supply chain). Unless there are clear parameters for determining State’s VAT collection rights, it is likely that goods which move across state lines may be subject to multiple VAT collection. Note that Lagos State had previously passed into law a Consumption Tax Law. In an earlier case brought by certain hotel owners challenging the consumption tax law, the Supreme Court held that imposing both VAT and consumption tax on taxpayers in respect of the supply of similar goods and services constitutes double taxation. How much more where multiple claims to the authority to administer VAT in states exist?

Conclusion

With the injunction pending appeal and the prevailing uncertainty on which tier of government should receive VAT remittances, keen attention must be paid to the outcome of the decision of the Court of Appeal on the stay of execution filed by the FIRS. A hearing of the application for stay of execution is fixed for 16 September 2021.