A misguided decision in Attorney general of Rivers versus FIRS case
The Federal High Court, Rivers, sitting in the Port Harcourt division delivered a 45-page judgment on August 9, 2021, in an action filed by the Attorney General of Rivers State against the Federal Inland Revenue Service (FIRS) and the Attorney General of the Federation (AGF) as the 2nd defendant.
In this case, the trial Judge, Stephen Dalyop Pam ignored all the known principles of taxation and the previous judicial decision, which had earlier laid the constitutionality of the Value Added Tax (VAT) Act to rest. His Lordship indirectly amended the Constitution of the Federal Republic of Nigeria, 1999 as amended and effectively put all the tax laws under the control of the plaintiff, the Rivers State.
The plaintiff prays the court to nullify the VAT Act, the Tertiary Education Tax Act (erroneously referred to as education tax by the plaintiff) Personal Income Tax, Stamp Duties Act as being unconstitutional null and void. Pages 1 to 33 of the judgment dealt only with the processes filed and exchanged by the parties and the preliminary objection raised by both the 1st and 2nd defendants relating to joinder or misjoinder of parties and the issue of jurisdiction of the court to entertain the application. The preliminary objections were rightly resolved in favour of the plaintiff and therefore not necessary for this review.
The judgment of the court can be summarized in two sentences. (1) The power of the National Assembly to make tax laws is limited to taxation of profit, income and capital gains only as contained in item 7 (a) & (b) of Part II of the Second Schedule to the Constitution and (2) the Federal Inland Revenue Service (Establishment) Act, Personal Income Tax Act, Value Added Tax Act, Taxes and Levies ( Approved List for collection) Act among others are null and void being tax laws not specifically mentioned in items 58 and 59 of the Exclusive Legislative List (ELL) of the Constitution.
There are five fundamental flaws in the judgment which are outlined as follows: (1) His Lordship erroneously limited the powers of the National Assembly to impose tax laws to items 58 and 59 of the ELL. His Lordship held at page 41 of the judgment that the Federal Government is only empowered to enact laws only in relation to stamp duties, taxation of incomes, profits and capital gains. The powers of the National Assembly to make laws extend beyond the items in the ELL.
The ELL contains 68 items but only four items were expressly referred to as taxes. If this judgment is to be taken seriously, it, therefore, means that all other tax laws (e.g companies income tax, tertiary education trust fund, withholding tax on companies petroleum profit tax etc), which were not mentioned in Item 58 & 59 of the ELL are null and void. Again, His Lordship did not consider item 68 of the ELL, which provides that ‘any matter incidental or supplementary to any matter mentioned elsewhere in this list.’ For example, the Tertiary Education Trust Fund (erroneously referred to as ‘education tax by the plaintiff and His Lordship) is derived from two per cent of the assessable profits of all companies operating in Nigeria, except the profits of companies in the petroleum upstream sectors. The question now is: If item 59 of ELL includes taxation of profit and two per cent of profits of companies is set aside as “education tax”, then why should such law be declared null and void on the flimsiest reason that it was not expressly mentioned in the Constitution?
(2) Another fundamental flaw in the case of the plaintiff which was not noticed by His Lordship was that the plaintiff did not plead any state law similar to the Value Added Tax Act. Maybe, if there were such laws, the issue of double taxation would have arisen. Even with such state law, His Lordship decision would not have been justified. His Lordship ought to have considered the case of AG Lagos State v. Eko Hotels Ltd & Anor ((2018) 36 TLRN 1 where the Supreme Court held that the Value Added Tax Act has covered the field and the Sales Tax Law cannot be enforced as that will amount to double taxation. Although Lagos State later enacted the Hotel and Restaurant Consumption Law and smartly inserted a five per cent tax on the goods consumed in hotels and restaurants in Lagos State. Even with this law, the Federal High Court in The Registered Trustees of Hotel Owners and Managers Association of Lagos v. Attorney-General of Lagos State & Federal Inland Revenue Service (Suit No: FHC/L/CS/360/2018) did not declare the entire Value Added Tax Act null and void but only exempted the goods consumed within the premises of hotels, restaurant and event centres in Lagos State from the value-added tax on the ground that items consumed in hotels and restaurants were not covered by VAT Act.
(3) In this present case, His Lordship also did not consider the doctrine of covering the field. Section 4(5) of the Constitution provides that if any law enacted by the House of Assembly of a State is inconsistent with any law validly made by the National Assembly, the law made by the National Assembly shall prevail, and that other law shall, to the extent of the inconsistency, be void. His Lordship should have thrown out the case of the Plaintiff since there was no such State Law in Rivers State in competition with the VAT Act, Capital Gains Tax Act and Personal Income Tax Act.
(3) The judgment is also self-contradictory. In one breath, His Lordship agreed that the power of the National Assembly to make tax laws is limited to taxation of profit, income and capital gains only as contained in items 58 & 59 of the ELL and items 7 (a) & (b) of Part II of the Second Schedule to the Constitution. In another breath, the Court made a U-turn and granted all the prayers of the plaintiff, which among others includes a declaration that the Education Tax and Technology levy (which are taxes from profits of corporate bodies registered under the Corporate and Allied Matters Act, 2020, should be delegated to the plaintiff. One then wonders how the National Assembly will delegate the power to collect these taxes when it has been denied the power to impose them in the first instance.
(4)Another fundamental flaw noticed in the judgment is the first prayer of Plaintiff seeking a declaration that Plaintiff is entitled to be “bestowed” with the power to collect the capital gains tax, income, or profits of persons in Rivers State. This relief ought to have been struck out too. At this stage, His Lordship ought to have distinguished between the power to impose a tax and the power to collect tax. The present arrangement in our tax law is that the personal income tax, capital gains tax, and stamp duties are federal laws imposed by the federal government, while the 36 states of the federation are bestowed with the power to collect the taxes in respect of individuals in their respective jurisdictions and Rivers State is not an exception to this arrangement. What then is the rationale for this relief as contained in the judgment of the court?
In addition, at page 44 of the judgment, His Lordship held as follows: Item 7 (a) & (b) of the of Part II, Second Schedule is also unequivocal in limiting the entities to whom the National Assembly can delegate the power to collect such tax or administer the tax law to State Government or a State Government authority. Any delegation to any other person or entity apart from State Government or a State Government authority shall be null and void. This, Court so holds.
With utmost respect to His Lordship, this part of the judgment was an outright amendment of the 1999 Constitution. The word in Item 7 (a) & (b) of Part II of the Second Schedule is ‘may’ and not ‘can’ or ‘shall’. His Lordship ought to have considered that the word ‘may’ is discretionary while ‘shall’ is mandatory as stated by the Supreme Court in Achineku v. Ishagba 1988 4 NWLR Pt. 89 411. For that reason, the National Assembly is not under obligation to delegate the power of collection of these taxes to the Government of a State.
(5) Also the court did not consider section 25 of the Federal Inland Revenue Service (Establishment ) Act 2007, which provides that the Service ( 1st defendant) shall have the power to administer all the enactment listed in the first schedule to the Act, which includes the VAT Act, Capital Gains Tax Act, and Personal Income Tax Act. It may even be argued that the power to collect federal taxes delegated to the plaintiff under Item 7 (a) & (b) of the Part II of the Second Schedule to the Constitution has been withdrawn with the enactment of the Federal Inland Revenue Service (Establishment) Act 2007.
Although, the division of taxing powers in the 1999 Constitution does not reflect the principle of federalism. It is a design that is unfit for the growth of Nigeria. It is safe to conclude that Nigeria is a unitary system in disguise as federal. However, this mischief cannot be cured by a judicial decision but by an amendment of the Constitution.
Oyekan writes from the University of Warwick, United Kingdom.