By Uzoma Francis Ubani

Few questions in Nigerian tax law carry as much constitutional significance as to the ownership of Value Added Tax. VAT is paid by consumers, collected through suppliers, administered through statutory machinery and distributed as public revenue. Behind that administrative chain lies a deeper question: which legislature has constitutional authority to impose the value added tax?

The answer matters because Nigeria is a federation. The Federal Government and the federating states draw their legislative authority from the Constitution. Each tier of government must remain within the powers assigned to it. The National Assembly cannot enlarge its own competence through ordinary legislation. A State House of Assembly cannot enter a field assigned exclusively to the Federation. The Constitution is the measuring instrument.

The present controversy arises because VAT does not appear expressly in the Exclusive Legislative List or the Concurrent Legislative List. The Constitution expressly refers to taxation of incomes, profits and capital gains. It deals with stamp duties. It recognises customs and excise. It contains specific provisions for revenue distribution. VAT, as a general consumption tax on goods and services, receives no equivalent express treatment.

This article advances the view that the Federal Government has no general legislative power to impose and collect blanket VAT throughout Nigeria under the 1999 Constitution. A stronger constitutional position is that VAT, particularly VAT on intra-State consumption, belongs to the residual legislative powers of the federating states under section 4(7)(a). Federal competence may arise in defined areas of international and inter-state trade and commerce, but Item 62(a) cannot be stretched beyond its scope, to include a general consumption-tax power over every supply of goods and services in all states of the federation.

The point requires clarity from the Supreme Court. Since 2021, the VAT dispute has remained in the judicial system without a final pronouncement on its merits. In the meantime, federal collection continues in practice. The longer this continues, the more an interim arrangement begins to shape the fiscal reality of the federation. This is unhealthy for a constitutional democracy such as Nigeria.

The stakes of this question extend well beyond the legal community. VAT presently represents one of the most significant non-oil revenue heads in Nigeria. Any constitutional reallocation of the tax has implications for the budgets of the Federal Government, the 36 federating states and the Federal Capital Territory, for sub-national debt servicing, for development planning, and for the credibility of intergovernmental fiscal relations. A question of this magnitude cannot remain perpetually unanswered. The longer the silence, the greater the temptation to treat administrative practice as if it were constitutional law.

The constitutional framework: Enumerated federal powers and residual federating states powers
The starting point is section 4 of the 1999 Constitution. Section 4(2) gives the National Assembly power to make laws for the peace, order and good government of the Federation or any part thereof with respect to matters in the Exclusive Legislative List. Section 4(3) makes that power exclusive in relation to matters listed therein. Section 4(7)(a) empowers a State House of Assembly to legislate for the peace, order and good government of the state on matters outside the Exclusive Legislative List.

This structure is basic to Nigerian federalism. The Federal Government acts within enumerated fields. The federating States retain residual competence. The Constitution does not operate on the assumption that every important subject belongs to the Federation. Importance alone do not create legislative competence.

Item 59 of Part I of the Second Schedule gives the National Assembly power over taxation of incomes, profits and capital gains. VAT does not fit naturally within those words. A business may be liable to account for VAT even where it makes no profit. A consumer bears VAT because he or she consumes goods or services, not because he or she earns income. VAT is supply-facing and consumption-oriented. It is charged on taxable supplies and is collected through a chain of transactions.

Item 62(a) gives the National Assembly power over trade and commerce, especially trade and commerce between Nigeria and other countries and between one State and another. That provision gives the Federation a genuine constitutional role in cross-border and inter-State commercial regulation. Its language, however, is regulatory. Where the Constitution intends to confer taxing power, it tends to speak in the language of tax, duty, income, profit, capital gains, customs, excise or stamp duties.

The implication is straightforward. VAT on purely intra-State consumption falls more comfortably within State competence. The Federal Government may have a stronger case over imports, exports, digital cross-border supplies and inter-State transactions. Even there, the legal basis must be carefully defined. Item 62(a) can support regulation of trade and commerce. It should not become a constitutional shortcut for blanket VAT across the Federation.

It is also worth observing that the principle of expressio unius est exclusio alterius supports this reading. Where the Constitution names specific tax heads in the Exclusive Legislative List, the omission of consumption tax is not a drafting oversight to be cured by judicial expansion. It is a textual signal that the framers did not intend to confer such authority on the Federation by implication. The proper constitutional response to such a gap is amendment, not interpretation.

VAT as a consumption tax
VAT is a tax on value added at each stage of production and distribution, with the economic burden usually passing to the final consumer. It operates indirectly because suppliers collect and remit the tax, while consumers ultimately bear the burden through price.

This legal character greatly matters. A tax on income or profit looks to the gain, earnings or taxable profit of the person assessed. VAT looks to the supply. The suppliers’ profitability is secondary to the taxable transaction. That distinction explains why VAT cannot be placed casually under Item 59.

The Nigeria Tax Act, 2025, confirms the distinct statutory identity of VAT. The Act contains a separate chapter on VAT, with provisions on imposition, charge, taxable supplies, time of supply, rate, imported taxable supplies, non-resident supplies, VAT invoices, collection and input tax credit. The Act also separately deals with taxation of income, profits or gains and with taxation of dutiable instruments. The internal architecture of the 2025 Act, therefore, treats VAT as a distinct form of taxation rather than a mere extension of income tax or stamp duties.

The constitutional problem remains. A statute may classify VAT clearly and modernise its administration, but constitutional authority must come from the Constitution itself. The Nigeria Tax Act, 2025, repeals and consolidates several laws, including the former Value Added Tax Act, and states that it provides unified fiscal legislation for taxation in Nigeria. That statutory consolidation is significant for administration. The distribution of legislative power between the Federation and the federating States still depends on the Constitution. A further analytical point is worth emphasising. Tax classification in constitutional law is not a question of label but of incidence. The economic incidence of VAT falls on the consumer; the legal incidence rests on the supplier as collection agent. Neither point connects VAT to income, profit or capital gain.

The classification of VAT as a consumption tax is not a matter of academic preference. It is the settled view in tax jurisprudence across federal systems and is reflected in the OECD International VAT/GST Guidelines, which treat VAT as a tax on final consumption applied through staged collection. To treat VAT as a species of income tax would distort both constitutional analysis and international tax practice.

To be continued tomorrow.

Dr Ubani, a fellow of the Chartered Institute of Taxation of Nigeria, can be reached via [email protected],