Since its introduction in 1993, Value Added Tax (VAT) has continued to be the one of the most stable and highest yielding sources of tax revenue for the Federation. Statistics show that VAT has contributed ₦1.108 trillion, ₦1.19 trillion and ₦1.5 trillion respectively in the last three years of, 2018, 2019 and 2020. Despite its huge contribution to national revenue, the validity of VAT has been a contentious issue especially in the light of Consumption/Sales Tax imposed by some States of the Federation. This issue has been a subject of litigation in different courts up to the Supreme Court and the various judgments have reflected the divergent views on its validity or otherwise.

In yet another judgment delivered on 11 December 2020, the Federal High Court (FHC) in Emmanuel Chukwuka Ukala v. FIRS1 (Ukala's Case) held that the powers of the National Assembly to make laws imposing taxes is limited to the profits/income of persons/companies, capital gains and stamp duties on instruments but does not extend to VAT. Given the far reaching pronouncements made by the FHC in this case, this article seeks to analyse the potential effect of the decision and its implications on the continued imposition of VAT in Nigeria.

Previous Challenges to the Administration of VAT

As a background, the 1979 Constitution omitted sales or consumption from the taxing powers under both the Exclusive and Concurrent Lists, prompting the reasonable assumption that taxation of sales and consumption was a matter reserved for the States to legislate and administer. Following this development, many States enacted and administered sales tax laws although this did not go without a challenge as was seen in AG Ogun State v. Aberuagba2 , where the Supreme Court held that the Sales Tax Law of Ogun State was invalid as it encroached the Exclusive Legislative powers of the Federal Government. The Court of Appeal however, upheld the Lagos State Sales Tax Law in Nigerian Soft Drinks v. Attorney General of Lagos State3 , when it held that the Lagos State Law did not seek to tax items covered in the Exclusive Legislative List. This was the state of affairs, until the VAT Act was introduced in 1993 to replace the sales tax laws of the States. This was not immediately challenged, since it was introduced under the Military Regime.

With the return of democracy and the fact that the Exclusive Legislative list under the 1999 Constitution mirrored that of the 1979 Constitution coupled with the increased clamour for fiscal federalism, some states started to introduce consumption taxes, which were invariably challenged. The VAT Act therefore came into focus and this culminated with the Supreme Court decision in Attorney General of Lagos State v. Eko Hotels and Another4 (Eko Hotels Case), where the Supreme Court held that the VAT Act, being an enactment of the National Assembly, had covered the field on the issue of Sales Tax and must prevail over the Sales Tax Law of Lagos State. Accordingly, this upheld the validity of the VAT Act and its supremacy over Sales / Consumption taxes introduced by the States.

However, in October 2019, the FHC in The Registered Trustees of Hotel Owners and Managers Association of Lagos v. AG of the Federation & Others5 , which concerned the validity of the Hotel Occupancy and Restaurant Consumption Law of Lagos State upheld the powers of Lagos State to charge and collect Consumption Tax (a sales tax) from hotels, restaurants and event centres within the state. The Court held that based on the provisions of the 1999 Constitution and the Taxes and Levies (Approved List for Collection) Act, the power to impose consumption tax was a residual power within the exclusive competence of the states and further restrained the Federal Inland Revenue Service (FIRS) from imposing VAT on goods and services consumed in hotels, restaurants and event centres as this was already covered by the Lagos State Law. Interestingly, the FHC in this case did not follow the reasoning in the Eko Hotels case or even an earlier 2018 FHC decision in Nigeria Employers Consultative Association (NECA) & Anor v Attorney General of the Federation & Two Others5 , where the Kano State Consumption Tax Law was nullified on the basis that it imposed consumption tax at 5% on goods and services which were already subject to VAT.

Overview of the Decision in Ukala v. FIRS

In Ukala's Case, where the FHC expressly held that the National Assembly had no power to enact the VAT Act, the plaintiff had by an Originating Summons, amongst others, asked the FHC to determine the extent of powers of the Federal Government to make laws for the purpose of taxation other than taxation of incomes, profits and capital gains.

The Plaintiff's position was that the constitutional powers of the Federal Government to impose taxes are limited to the items listed in Item 59 of Part 1 of the 2nd Schedule to the Constitution and does not include the power to impose VAT. He therefore asked the FHC to declare that there was no constitutional basis for the imposition, demand and collection of VAT by the FIRS from him since the constitutional powers and competence of the National Assembly were limited to the those specifically listed in Item 59, which did not include VAT or any other species of sales tax.

The Court in response held that the 1999 Constitution expressly prohibits the National Assembly from enacting a law on any other head of revenue except for incomes, profits and capital gains and stamp duties on documents and transactions. It further held that if the National Assembly makes laws for any other item of taxation outside those for which the 1999 Constitution expressly vests the National Assembly with powers to make, they become a nullity.

The FHC's position essentially hinged on the fact that the express mention of taxation of incomes, profits, capital gains and duties on documents and transactions for the National Assembly is to the exclusion of other forms of taxes, levies, rates and fees, including VAT/sales tax.

Implications of the Decision

Worthy of note is the fact that previous cases have largely been in respect of supremacy or otherwise of VAT (i.e. covering the field) over Consumption or Sales Tax. However, Ukala's Case went further than any previous decisions as it scrutinized the powers of the National Assembly to validly enact the VAT Act, outside of its limited powers of taxation of incomes, profits, capital gains and stamp duties.

This decision may therefore have a far-reaching effect, given that the VAT Act forms the legal basis for imposition, collection and distribution of VAT between the Federal, State and Local Governments. In this regard, we have examined the possible implications of this judgment from three angles discussed below:


This creates a lot of uncertainty for taxpayers and opens the window to challenge the powers of the FIRS to impose and collect VAT from them. Given this decision, an aggressive taxpayer may claim that they have no obligation to either charge or pay VAT on taxable transactions and may in fact go as far as asking for refunds of VAT collected from them. While this may seem far-fetched, the reality is that the decision opens up a lot of possibilities and a taxpayer who wants to test the application of this decision may take any of the steps highlighted above. It should be noted that the decision being one of a court of competent jurisdiction in Nigeria, remains binding and enforceable, until overturned or stayed on appeal.


For the FIRS, this is a huge challenge to one of its major sources of tax revenue and one that can impact its ability to enforce VAT compliance. Although available information is that that the FIRS has already taken steps to appeal the decision, it still has to manage the possible impact on its tax collection pending the conclusion of the appeal, especially as other taxpayers may try to take advantage of the decision. The likely approach of the FIRS will be to insist that taxpayers continue to discharge their VAT obligations until the appeal process is exhausted. Another option may be to seek an amendment of the relevant Constitutional provisions to give the Federal Government the necessary powers to make laws allowing it to collect VAT, especially given the ongoing Constitutional amendment process. Whatever the approach of the FIRS, it needs to clearly communicate to taxpayers to avoid a situation where taxpayers decide to pick and choose how and when to comply with the VAT Act based on this decision.

Federal, State and Local Governments

Given the current revenue shortfalls being experienced across the Federation, this may not be the best time to have a challenge to one of the major revenue sources of Government. The three tiers of Government, who are the beneficiaries of VAT collection, especially States and Local governments who take the huge chunk may be aware of the possible impact that the decision may have on their revenue and are likely to support any actions to be taken by FIRS to overturn the decision.


Given the constitutional nature of the issues considered in Ukala v. FIRS, it is expected that the appeal process would get to the Supreme Court for a conclusive determination of the issues in contention. This will help to bring certainty and closure to the various challenges on the taxing powers of the States and the Federal Government in respect of sale/ consumption or value added tax. Until that time, taxpayers would need to make compliance decisions based on their preferred compliance approach (aggressive or conservative) and the advice of their tax consultants.


1. (2021) 56 TLRN 1

2. (1985) 1 NWLR (Pt. 3) 395

3. (1987) 2 NWLR (Pt 57) 444

4. 2018 (36) TLRN 1

5. Unreported judgment delivered by Hon. Justice R. M. Aikawa of the FHC in Suit No: FHC/L/ CS/360/201

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.