April 16, 2018
On 8 December 2017, the Supreme Court affirmed the Court of Appeal’s decision on the illegality of Sales Tax collection. The Supreme Court held that the VAT Act, being an enactment of the National Assembly, has covered the field on the issue of Sales Tax and must prevail over the Sales Tax Law of Lagos State.
The VAT Act, which is a Federal law, imposes tax at 5% on supply of goods and services in Nigeria while the Sales Tax Law, a Lagos State law, imposes tax at 5% on sale of goods and services in Lagos State. Both taxes are payable by the consumers of such goods and services and are to be remitted to the Federal Government and the Lagos State Government (LSG), respectively.
Following series of demand letters from both the Federal Government and the LSG to Eko Hotels Limited (EHL) for the collection of VAT and Sales tax respectively, EHL, on 5 March 2004, instituted an action before the Federal High Court to determine the appropriate government body (between the Federal Government and the LSG) that is entitled to collect the tax.
The Federal High Court and the Court of Appeal held that EHL can only remit the tax on its sales to customers to the Federal Government. Dissatisfied with the Judgment of both Courts, the LSG appealed to the Supreme Court. The Counsel to the LSG, in his argument, challenged the validity of the VAT Act and further argued that Lagos State Government has the constitutional power to collect Sales Tax by virtue of Section 4 of the 1999 Constitution.
The Supreme Court unanimously dismissed the appeal. Specifically, the Court held that the VAT Act has covered the field on the subject of Sales Tax and therefore prevails over the Sales Tax Law of Lagos State. In reaching this decision, the Supreme Court relied on the doctrine of “covering the field” which suggests that once any law validly made by the Federal Government has covered the field of a State law, the Federal law must prevail and where the State law is consistent with the Federal law, the State law has to be left in abeyance pending when the Federal law may give way for its operation. The Court further held that if the two laws are allowed to operate simultaneously, it will amount to double taxation on the same goods and services.
The Judgment in this case reiterates the position of the law which is that a legislation by the National Assembly on a subject matter would prevail
over a legislation by the State House of Assembly on the same subject matter.
On a different note, it would seem that the Supreme Court might have reached a similar decision in evaluating the legality of the Consumption Tax being collected by the Lagos State Government from hotels, event centres and restaurants, if it had applied the principle of covering the field as it did in this Judgment on Sales Tax. This is because Consumption Tax, just like Sales Tax, is a tax on sale of goods and services, except for the fact that it is only applicable to specific transactions.