November 5, 2019
In a bid to increase internally generated revenue, many State Governments have introduced taxes on persons and transactions within their jurisdiction. In 2009, Lagos State, enacted the Hotel Occupancy and Restaurant Consumption Law of Lagos State (Hotel Consumption Law), which imposes consumption tax at 5% on the value of goods and services consumed in hotels, restaurants and event centres within Lagos State. Kano State also enacted a similar law.
The validity of such consumption taxes has been a contentious issue, especially given that the Value Added Tax (VAT) collected by the Federal Government imposes a similar tax on the value of supply of goods and services throughout the Federation. Thus, the issue has been a subject of litigation in different courts and the resulting judgments have given rise to divergent commentaries in recent times.
This matter was again brought to the fore on 3 October 2019, when the Federal High Court (“FHC”) sitting in Lagos upheld the powers of the Lagos State Government to charge and collect consumption tax from hotels, restaurants and event centres within the state in the case of The Registered Trustees of Hotel Owners and Managers Association of Lagos (Hotel Owners) v Attorney General of Lagos State (Hotel Owners’ Case). Curiously, in that case, the FHC also restrained the Federal Government from collecting VAT on goods consumed in hotels, restaurants and event centres in the State.
This decision has sent out mixed signals to taxpayers given that in reaching its decision, the FHC in the Hotel Owners’ case deviated from the reasoning of the courts in previous decisions such as in the case of Attorney General of Lagos State v Eko Hotels Limited (Eko Hotels Case) where the Supreme Court upheld the collection of VAT over the erstwhile Lagos State sales tax.
This Article seeks to analyze the decision of the FHC in the Hotel Owners’ case, its implication on previous decisions and the continued imposition of VAT in Nigeria.
Background and Summary of the Hotel Owners’ Case
The VAT Act of 1993 introduced VAT in Nigeria to impose and charge tax at 5% on the value of goods and services supplied in Nigeria. It is administered by the Federal Inland Revenue Service and its introduction replaced the erstwhile sales tax which was administered by the States. Revenue from VAT is shared among the three tiers of government in the ratio of 15% to the Federal Government; 50% to the State Governments and 35% to the Local Governments.
In 2009, the Hotel Consumption Law of Lagos State introduced a consumption tax of 5% on the value of goods and services consumed in hotels, restaurants and event centres within Lagos State essentially subjecting consumers of goods and services in these locations to both consumption tax and VAT on the same tax base.