The Federal Inland Revenue Service (FIRS) as an agency of the Federal Government, has been solely responsible for the administration and management of VAT assessment and collection in Nigeria. The judgment delivered by the Federal High Court, Port- Harcourt Division on 9th August, 2021, in AG Rivers State v. FIRS & AG Federation1 has effectively barred the FIRS from administering, Nigeria's VAT regime.

This newsletter discusses the implications of the decision of the Federal High Court as well as subsequent events which have occurred after the court's decision.

What is VAT?

VAT is a consumption tax paid on all goods and services provided in or imported into Nigeria. VAT, which is currently charged at the rate of 7.5% is payable by individuals, companies, and government agencies. Certain goods and services including medical and pharmaceutical products, medical services basic food items, books and educational materials, exports e.t.c. are exempt from VAT. The VAT Act, 1993 (as amended) vests the FIRS with the power to administer the collection VAT from taxable persons in Nigeria.

Implications of the Judgement of the Federal High Court

In the case of AG Rivers State v. FIRS & AG Federation, the Federal High Court provided a literal interpretation of the Constitution of the Federal Republic of Nigeria, 1999 as amended (the "Constitution"), holding that the National Assembly is only empowered to enact laws in relation to stamp duties and the taxation of income/profit and capital gains. The court also held that pursuant to the Constitution, the Federal Government or any of its agencies, lacks the powers to impose and collect VAT, or any other tax not specifically provided for in the Constitution.

The decision of the Federal High Court, until upturned by a superior court, essentially renders the VAT Act and its amendments, void.

By implication therefore, individual states are entitled to enact laws for the administration of VAT and can appoint their respective tax agencies to supervise the collection of taxes within the state. The VAT Act will, however, still be applicable in the Federal Capital Territory and the FIRS will continue to be responsible for the administration of its VAT.

In addition, every state will be entitled to the revenue accruing from the VAT collected by it and VAT from each state will no longer be pooled into the Federation Account.

Lagos State VAT Bill

By virtue of the Federal High Court's decision on VAT, states like Lagos State and Rivers State have raced to the drawing board to develop their own VAT laws which will govern the administration of VAT in the state.

Lagos State for example, has passed a bill to impose and charge VAT on certain goods and services and to provide for the administration of VAT in Lagos state. The Value Added Tax Bill ("Bill") has been passed by the Lagos State House of Assembly and awaits the assent of the Lagos State Governor. Some key provisions of the Bill are highlighted below.

1.Rate of Tax: 6% of the value of goods and services as opposed to the current rate of 7.5% imposed by the Finance Act, 2019.

2.Administration of VAT: The Lagos State Internal Revenue Service (LIRS) has been vested with the power to administer VAT in Lagos State. All taxable persons are required to register with the LIRS within 6 months of the commencement of the VAT Law. Failure to comply is considered an offence and is punishable by a fine of N50,000 (Fifty thousand naira) for the first month of default and N100,000 for each subsequent month of default.

3.Returns to the LIRS: Taxable persons are required to render returns to the LIRS on or before the 21st day of the subsequent month after provision of goods and services. Failure to comply will make such person liable to a fine of N500,000. (Five Hundred Thousand Naira) for every month of default.

4.Treatment of non-resident companies: Companies that carry on business within Lagos State but are not resident in the state are required to register with the LIRS using the address of the person with whom it has a subsisting contract for the provision of goods and services. The non-resident company is to make provision for VAT in its invoice and the person to whom the services were rendered or the goods were provided is required to remit the tax to the LIRS.

5.Establishment of the Value Added Tax Tribunal: The Bill also establishes a Value Added Tax Appeal Tribunal which shall assist the LIRS in resolving disputes arising from tax assessments.

6.Sharing formular for revenue accruing from VAT: The Bill provides that the revenue obtained by the Lagos State Government from VAT will be distributed between the state and local governments in the ratio of 75% to 25%.


Many have raised concerns as to the practicability of the administration of VAT at the state level with respect to the taxation of non- residents of the states, the treatment of output and input tax, as well as the taxation of goods imported into the country. The FIRS has also appealed the judgment of the Federal High court on grounds that it is the appropriate agency to administer VAT in the country given the above listed complications. In the event that the appellate court decides against FIRS, it is recommended that the states take up the mantle that has been handed to them and effect necessary measures to ensure that the VAT is administered efficiently.


1. FHC/PH/CS/149/2020

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.