The Supreme Court will on Friday deliver a landmark judgment in a suit filed by the Lagos State Government, challenging the power of the federal government to assess and collect taxes on the supply of all goods and services within its constitutionally defined jurisdiction.
In a brief of argument filed by a law firm, Sofunde Osakwe Ogundipe & Belgore on behalf of Lagos State, the state government is seeking a declaration of the court to abolish the Value Added Tax (VAT) Act, which it said infringed on its power to assess and collect taxes on the supply of goods and services within its territory.
The state government also asked the Supreme Court to nullify the VAT Act and grant its reliefs, which according to the brief of argument, includes a declaration that the VAT Act “is outside the legislative competence of the National Assembly and is therefore unconstitutional, null and void and of no effect whatsoever”.
Consequent upon the reliefs it is seeking from the court, the plaintiff is also seeking a perpetual injunction restraining the federal government by itself, its servants or any of its agencies from continuing “to give effect to the provisions of the VAT Act to impose and collect taxes on goods and services within its territory”.
It argued that there “is abundant pronouncement from this court to the effect that the exercise of courts’ judicial powers under Sections 4 (8) and 6 of the 1999 Constitution, subjects the legislative powers of the national and state houses of assembly to the jurisdiction of the courts”.
It added that the courts have jurisdiction “to nullify any legislation which violates the provisions of the constitution. The courts have not been found wanting in exercising that jurisdiction and in declaring as null and void unconstitutional statutes that have been inconsistent with any section of the constitution”.
In the originating summons, the plaintiff averred that its House of Assembly “is the body entitled, to the exclusion of any other legislative body, to enact laws with regard to the imposition and collection of tax on the supply of all goods and services within its constitutionally defined jurisdiction.
“The Lagos State of Nigeria, or any agency of the state, is the body entitled, to the exclusion of any other body, to assess and collect such tax, and that the revenue of the Lagos State Government has been and continues to be affected by the enforcement of the provisions of the Value Added Tax Decree No. 102 of 1993, now Value Added Tax Act Cap V1 Laws of the Federal Republic of Nigeria 2004”.
In the two affidavits in support of its action, the plaintiff exhibited judgments of cases that had been concluded and other material with regards to cases that are pending to illustrate the difficulty it is having in collecting tax on the supply of goods and services within its jurisdiction.
The plaintiff contended that it is entitled, to the exclusion of any other body, to collect any tax on the supply of all goods and services within its jurisdiction under any law passed by the state House of Assembly and no other body or government is entitled to a share of such tax as may be collected.
The state government further averred that “it is encountering tremendous difficulty in enforcing its rights to collect tax on the supply of all goods and services within its territory as many taxable persons have resisted or are resisting such attempts, in reliance on the VAT Act, that the Government of the Federal Republic of Nigeria is the body authorised to collect such tax”.
However, in its notice of preliminary objection filed by the Office of the Attorney-General of the Federation, the federal government challenged the competence of the plaintiff’s action, contending that the action “relates to acts of a federal agency and cannot therefore form the basis for invoking the original jurisdiction of the Supreme Court”. Also, the federal government argued that the suit was an abuse of court process, which according to the preliminary objection it had submitted, as ordered by the court, in a brief of argument dated May 22, 2008.
The federal government contended that the plaintiff was ordered “to incorporate its response to the objection in this brief of argument. The plaintiff hereby does so and contends, upon the grounds that hereafter follow, that the notice of preliminary objection lacks merit and ought to be dismissed”.
According to the federal government, in 1993, the Federal Military Government of Nigeria (as it then was) promulgated a decree, the Value Added Tax Decree No. 102 of 1993, to impose and charge VAT on certain goods and services and to provide for the administration of the tax and matters related thereto.
“The decree came into effect on December 1, 1993 and an organ of the federal government was authorised to assess, collect, administer and manage the tax.
“The taxes so collected were distributed amongst the three tiers of government – federal, states and local governments – as per the distribution formula in force.
“From January 1999 to date, the formula has been as follows 15 per cent to the federal government, 50 per cent to the state governments and the Federal Capital Territory (FCT) and 35 per cent to the local governments,” the federal government averred.
But it said with effect from April 16, 2007, the formula was restructured to 50 per cent for distribution to state governments and the FCT, adding that this was done “to reflect the principle of derivation of not less than 20 per cent and similarly 35 per cent for distribution to local governments”.