19 Jan



Value Added Tax is a tax imposed generally on the consumption of goods and services. Was introduced in 1993 and has undergone several amendments up till the VAT Amendment Act of 2007. Before its introduction, sales tax was administered by the states. VAT has yielded more income.

The basis: The tax is imposed on the “supply of all goods and services other than those listed in the First Schedule to this act-Section 2VATA.” The Act fails to define “goods and services” this is what led to the error in Momomato Nigeria Ltd V UAC where Justice Aliu noted that sale of real property was within the ambit of VAT. Indeed, a dictionary meaning is very wide. See also Cadbury V FBIR

The FIRS circular has noted that supplies made outside Nigeria is out of the scope. This is in consonance with the principle in Boucher V Lawson that no nation would take account of the revenue law of another nation. Note however that information circular does not amount to a legislation. The right thing would be to amend as was done in Section 1 of the UK VAT 1994.

Under the schedule, the following goods and services are exempted.

  • Goods and services relating to health and medicine.
  • Basic food items: the FIRS Circular noted that basic in this sense relates to uncooked and unprocessed food items.
  • Educational materials and books.
  • Exported goods.
  • Agricultural and medical machinery.
  • Downstream gas utilisation machinery.
  • Services rendered by Community and Mortgage institutions.

Thus VAT can be described as tax imposed on the consumption of luxurious goods and services Section 4 imposes a rate of 5percent on taxable goods and services. It has been criticised for being the lowest although there has been a failed attempt to increase the rate.

Every taxable person is required to register (immediately after commencement of the business) and act as the agent of collection. A taxable person according to Section 46 is a person who independently carries out in any place an economic activity as a producer, wholesaler, supplier of goods and services or a person exploiting property for the purpose of obtaining income therefrom by way of trade, business and it includes an agency of the government acting in that capacity. Government should make sure that their contractors have been registered before they give out contracts.

Every taxable person must register once he commences business else a fine of 10,000 and 5000 for each subsequent month of failure to register-Section 8. The ultimate consumer bears the burden. Tax is to be remitted in the currency of the transaction-Section 8. This registration system is loose in practice as people hardly keep record of business The Supreme Court in Agberuaba V A.G Lagos noted that most of our sales are not accounted for. They can take place in homes, street, highways, under bridges and trees. This is why the VAT utilizes agents to collect tax.

FIRS has directed that where a taxable person has more than one branch, each branch should be registered separately at the nearest tax office. This would lead to multiple registration. For example, a foreign company with many branches will have to register in various tax offices. This would be burdensome. It would be better to just tell them to disclose each transaction and remit the VAT accruing.

Taxable persons are obliged to keep records and accounts relating to taxable goods to aid in ascertaining the correct amount due. The returns are to be rendered not later than the 30th day of every month-Section 15 this has been reduced to 20 days in the 2007 amendment Act. Else penalty of 5 percent of the sum due plus interest in addition to the tax-Section 19.

Rendering false or no returns would make the FIRS assess based on best of judgment. Reasonable notice must be given to the taxpayer about the assessment in accordance with Section 36 of the 1999 Constitution. FBIR V Johnson, FBIR V Animashaun. Else assessment can be voided.

Each supplier along the distribution chain participates in VAT administration. A manufacturer pays VAT on the cost of his raw materials (input VAT) and collects VAT on the value of his supplies to wholesalers (Output VAT), same process continues till the final consumer (Wholesaler pays vat on the purchase from the Manufacturer (input vat) and collects VAT on the value of his supplies to the Retailer (output VAT)) In computing his tax liability, he is to find out the difference between VAT paid by him (on purchases) and the vat collected by him (VAT on supplies). He is entitled to deduct input vat from output vat and claim a refund if the input vat exceeds the output vat or remit the difference to the taxing authority if the output vat exceeds the input vat-Section 16. Eventually, the final burden falls on the consumer who pays 5 percent on the ultimate retail price. Thus, although it is a multiple stage VAT, it has a single effect which is 5 percent of the retail price.

Owing to the floodgate of applications for refund, the FIRS issued a circular which noted that refund may be claimed:

  • As Credit method: where the refund shall be credited to the taxpayers subsequent tax liability.
  • Direct Cash Method: where they get refunded with the cash/money.
  • Combination of both.

After the necessary audit has been carried out. The audit would ascertain the veracity of the taxpayer’s claim. Section 17 notes that refund shall only be applicable to goods purchased or imported directly for resale and goods used for the production of new products.

Input vat on overhead, services and fixed assets are not allowed.

Non-oil exports are zero-rated. A registered taxpayer for Zero-rated goods is entitled to a refund while there is no refund for exempt goods.

Distribution of VAT.

Initially 20:80percent for the FG and States respectively. The tax brought a lot of revenue thus, the sharing formular was changed to 50:25:25 for FG, States and LG respectively. There has been various amendments and at present, the sharing formula is 15:50:35 for the FG, States and LGs respectively. For the 50 percent provided for states, 50 percent is shared on the basis of equality, 30 percent based on population and 20 percent on derivation. Lagos complained that it was inequitable and re-introduced her Sales Tax Law in 2000. In 2007, the VAT sharing formula for states shall provide not less than 20 for derivation.

In AG Lagos V Eko Hotels, the court noted that the sales tax of Lagos was null and void. In this case, an inter-pleader action was brought by Eko Hotels. Meaning that a third party holds something which two or more parties are laying claim to. it instituted the jurisdiction of the court to determine whom it should remit tax to between Lagos State and the FG for sales tax and vat respectively. The court held that it should remit the proceeds of VAT collected from its customers to the FG. On the basis that item D7 and 8 Part II which the court relied on to hold that since the FG already covered the field on VAT, Lagos law was null. Ige Bolodekun has criticised this position on the ground that Item D7 and 8 has no bearing on sales tax as it deals only with PIT, CGT and Stamp duties and D8 seeks to prevent double taxation. He also distinguished the Sales tax law of Lagos state from VAT on the basisi that VAT covers both international trade and commerce. Although both are taxes on goods and service, other differences include:

  • Vat is imposed on all stages in the distribution chain.
  • Vat has a wider base.

In Mama Cass Restaurant V AG Lagos, the court also held in favour of the FG.

In Manufacturer’s Association of Nigeria V A.G Lagos, the court noted that in determining double taxation (following Black’s Law Dictionary) we ask whether it is imposed on the same tax base, period, by the same authority, for the same purpose.

An aggrieved taxpayer can appeal to the Tax Appeal Tribunal, further appeals go to the FHC. The court of appeal in Stabilini V FBIR and Cadbury V FBIR held that the establishment of VAT Appeal Tribunal violated the provisions of Section 251 and 272 of the 1999 constitution which vests the FHC with exclusive jurisdiction to hear and determine causes and matters relating to the revenue of the Federal Government in which the Federal government or its organs or agency is a party to.

Offences: Section 21-29. Include, failure to notify of change of address, failure to issue tax invoice, failure to keep proper records, resisting officials, failure to file returns. The punishment for evasion is a fine of 30k or double the amount to be paid or imprisonment for a term not exceeding 3 years.

FIRS administers vat and has created 77 integrated Tax Offices as one-stop shops for all tax payments including VAT.

VAT or Sales Tax of the States?

The court in AG Ogun State V Ayinke Aberuagba noted that the State governments can impose sales tax within the limit of their jurisdiction (intra-state tax) and must not impose on goods that cross boundaries (inter-state goods). Section 3 of the Ogun State Sales tax law which sought to impose tax on inter-state goods was null for having the same pith and substance with the VAT.

Different states charged different rates of sales tax on different goods. This led the FG to set up a sales tax committee to fix the prices of taxable goods and services. This was done to ensure uniformity and enhance the administration of sales tax. Sales tax did not yield the desired revenue. To this effect, VAT was introduced in 1st January 1994 and repealed the sales tax decree following the workings of the Sylvester Ugoh Study group. The VAT decree vested the administration on the FBIR.

Lagos has contended the following:

  • That it generates more than 60 percent of VAT proceeds while it receives a disproportionate part of the revenue compared to the other states.
  • Few Local Governments: which it has tends to put other states at a privileged position. E.g in the Old Kano which has been divided into two states – Jigawa and Kano having 63 LGs while Lagos has 20 LGs.
  • That the northern states should not share the proceeds of vat because it is derived from certain luxurious activities which they detest. Like smoking, hotels, restaurants, and so on.
  • The need to practice true federalism as Tinubu has noted that “we want a republic not an empire”
  • Huge population and facilities to maintain in Lagos.

A historical appraisal of this issue:

Under the 1960 constitution, sales/purchase tax was under the exclusive legislative list (Item 38). Under the 1979 constitution, the exclusive legislative list omitted matters dealing with sales or purchase tax. Against this omission, the states allege that sales tax is implied to be within their jurisdiction under item 15 and 61 dealing with excise duty and regulations on trade and commerce respectively. The FG on the other hand argued that since Item 61 of the Exclusive legislative list 1979 of the 1999 Constitution empowered the FG to legislate on Trade and commerce.

In Nigerian Soft Drinks Company Ltd V AG Lagos, held that since Section 2 of the Lagos state’s Tax law imposed tax on intra-state goods it was constitutional.

There could be double taxation where the same item is subject to tax twice or more to the same person-Akanle. In Second St. Properties Inc V Fiscal Court of Jefferson County, the court noted that double taxation occurs where tax is imposed on the same property by the same governing body during the same taxing period for the same taxing purpose.

Chief Gani Fawehinmi has noted that “you may call it any name but it’s the same thing and they serve the same purpose”. Items D8 and 10 enjoin the FG to prevent double taxation.

Section 10 of the Sales Tax Law imposes a penalty on any person who fails to comply with the provisions of the law (1k and 2k) so also does the VATA under Section 30 (“a taxable person who fails to collect tax under this decree shall be liable to pay a penalty of 150 percent of the amount not collected plus 5 percent interest above the CBN discount rate”).

It may be concluded that VAT should impose on inter state supplies while Sales tax should impose on intra state supplies. Doing contrary would be ultra vires.

Issues: registration, Appeal procedure (TAT then FHC)




Quite eccentric really

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