Federal High Court Upholds State Government’s Powers to Collect Consumption Tax
By: Abax-Oosa Professionals
Tags: Accounting, Taxes

Federal High Court Upholds State Government’s Powers to Collect Consumption Tax

The Federal High Court (FHC)), on 3, October 2019 delivered judgment in the case between The Registered Trustees of Hotel Owners and Managers Association of Lagos (RTHMAL) and the Attorney-General of Lagos State and Federal Inland Revenue Service. The Court upheld the powers of the State Government to charge and collect Consumption Tax from hotels, restaurants and events centres within the state. The court also restrained the Federal Government from collecting Value Added Tax (VAT) on goods consumed in hotels, restaurants and event centres.

According to the Court, Consumption Tax on hotels, restaurants and event centres is in the purview of the State Government based on the 1999 Constitution and the Taxes and Levies (Approved List for Collection) Act (Taxes and Levies Act). Thus, the provisions of the VAT Act in respect of consumption of goods and services in hotels, restaurants and event centres are inconsistent with the Constitution and the Taxes and Levies Act, and are therefore void.

Details

The VAT Act was introduced in 1993 to impose and charge VAT at 5% on the value of goods and services supplied in Nigeria. The VAT Act is administered by the Federal Inland Revenue Service (FIRS). Consequently, Hotel Owners have been compliant with the provisions of the VAT Act and have been remitting VAT at 5% to the FIRS.

In 2009, the Lagos State Government enacted the Hotel Occupancy and Restaurant Consumption Law of Lagos State (Consumption Tax Law). The Consumption Tax Law imposes Consumption Tax at 5% on the value of goods and services consumed in hotels, restaurants and event centres within Lagos State. Thus, consumers of goods and services in hotels, restaurants and event centres suffer both Consumption Tax and VAT on the same tax base, amounting to double taxation.

Following this development, the Hotel Owners instituted an action in the FHC, seeking a declaration that the Consumption Tax Law of Lagos State is inoperable and of no effect because the VAT Act has fully covered the field on the subject of Consumption Tax.

The Court, however, ruled in favour of the Lagos State Government upholding the powers of the State Government to charge and collect Consumption Tax. In reaching this decision, the Court relied on the 1999 Constitution and held that Consumption Tax on goods and services consumed in hotels, restaurants and event centres is a residual matter which is within the exclusive legislative competence of a State Government.

The Court further held that under the Taxes and Levies Act, Consumption Tax arising from transactions involving the sale of goods and services in hotels, restaurant or event centres is to be collected by the State Government. The Court also stated that since the Taxes and Levies Act (as amended in 2015) was enacted after the VAT Act of 1993, its provisions have tacitly repealed any provisions of the VAT Act concerning hotels, restaurant and event centres and should thus prevail. The Court therefore restrained the FIRS from collecting VAT on transactions relating to the consumption of goods and services in hotels, restaurants and event places in Lagos.