An Overview Of Vat Taxing In Nigeria: A Review Of Landmark Decisions On Double Taxtion

INTRODUCTION:

Value Added Tax (VAT) is a consumption tax levied on goods and services in Nigeria. The collection and distribution of VAT have been a subject of debate among stakeholders, particularly with regards to the landmark decisions. The recent Federal High Court judgment in the case of Attorney General of Rivers State vs. Federal Inland Revenue Service & Attorney General of the Federation has sparked intense debate across Nigeria. The decision has reignited discussions on fiscal federalism, questioning the taxing powers of the federal government and states within the federation. This ruling also raises fundamental questions about the nature of federalism practiced in Nigeria, potentially leaning towards unitarism. Key issues emerging from this decision include the limits of the National Assembly's legislative powers, particularly regarding matters in Chapter II of the Nigerian Constitution and whether these developments have diminished the "residual powers" traditionally reserved for states in a federal system.

This analysis reviews the pros and cons of the Federal High Court's decision, highlighting its strengths and weaknesses, to identify potential solutions and directions for resolving the legal impasse and enhancing Nigeria's federal experience.

THE CONCEPT OF TAXING POWER:

Taxing power refers to the legitimate authority granted to a governmental body to levy, impose, and collect taxes in accordance with the law. This power enables a tier of government to legislate on taxation, prescribe conditions for tax collection and administration, and enforce tax laws within its jurisdiction¹.

In a sovereign government, taxing power is the absolute authority to impose taxes on persons, income, and activities within its territory, exercisable only through legislation². The extent to which a government can exercise its taxing powers is largely determined by its system of government. Nigeria's federal system divides power among the federal, state, and local governments, each with distinct taxing powers. This division implies that each tier of government has the authority to impose and collect taxes within its areas of jurisdiction.

Nigerian taxes are broadly categorized into federal and state taxes, each established by distinct laws and subject to specific jurisdictional limitations. The administration of these taxes is divided between the federal government, which oversees federal taxes, and state governments, which administer state taxes. The authority to impose and administer taxes is governed by law, outlining the scope and application of each tax type.

DIFFERENCES BETWEEN FEDERAL AND STATE TAXES IN NIGERIA

The Federal Government, exercising its taxing powers under the Exclusive Legislative List, enacts tax laws to impose taxes on specific items. These taxable items include, customs and excise duties, export duties, company income tax, income tax on federal workers, private sector employees in the Federal Capital Territory, and members of the armed forces and police. Tax on foreign service officers and non-resident individuals with Nigerian- sourced income, petroleum profits tax, stamp duties on federal documents and transactions, capital gains tax on companies, taxes on international and interstate trade and commerce, entertainment tax in the Federal Capital Territory, taxes related to tertiary education and information technology development, and tax on real properties in the Federal Capital Territory. These taxes are categorized as federal taxes, imposed by the Federal Government through legislation and administered by the Federal Inland Revenue Service.

State governments, under the Concurrent Legislative List, exercise their taxing powers by enacting laws that impose taxes on specific items. While sharing legislative competence with the Federal government, State governments can levy taxes on income of state workers and private sector employees within the state, documents and transactions involving individuals, assets disposed of by individuals, real property within the state. Additionally, State governments can impose taxes on matters not covered by the Exclusive and Concurrent Lists, such as entertainment tax within their territories. These taxes are classified as State taxes, highlighting the shared taxing authority between the Federal and State governments.

The Federal and State governments' taxing powers are governed by constitutional doctrines, including the doctrine of covering the field. This principle resolves conflicts between federal and state laws. When the National Assembly enacts a law on a matter within the Concurrent Legislative List, it supersedes any inconsistent state law, rendering it void to the extent of the inconsistency³. Secondly, the inconsistency rule which ensures that state laws align with federal laws, preventing conflicts and inconsistencies. These doctrines ensure a harmonious exercise of taxing powers between the Federal and State governments, with the National Assembly's laws taking precedence in areas of shared legislative competence.

Examining the Taxing Powers of Federal and State Governments in Nigeria:

The taxing powers of the Federal and State governments in Nigeria are derived from Section 4 of the 1999 Constitution, which grants legislative powers to the National Assembly and State Houses of Assembly. These legislative institutions have the authority to make laws for the country's peace, order, and good governance, albeit on different matters⁴.

The Federal Government exercises its taxing powers through the National Assembly on matters listed in the Exclusive and Concurrent Legislative Lists⁵. In contrast, State Governments exercise their taxing powers through State Houses of Assembly on matters in the Concurrent Legislative List (provided the Federal Government hasn't legislated on the matter) and the Residual List⁶. Tax administration and collection are carried out by the Federal Inland Revenue Service (FIRS) for the Federal Government and States Inland Revenue Services for State Governments. These agencies are established by law to administer and collect taxes on behalf of their respective governments⁷.

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Footnotes

1. Aladekomo A.S., Division of Taxing Powers in the Federation of Nigeria, < https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3639090 >, 22, accessed 9 th July 2025

2. Section 2 (2) 1999 CFRN provides that "Nigeria shall be a Federation consisting of States and a Federal Capital Territory."

3. Section 4 (1), 1999 CFRN provides that "The legislative powers of the Federal Republic of Nigeria shall be vested in a National Assembly...which shall consist of a Senate and a House of Representatives."

4. Ibid

5. Section 4 (6), 1999 CFRN provides that "The legislative powers of a State of the federation shall be vested in the House of Assembly of the State."

6. Section 4 (4)(a), 1999 CFRN; Part II, Schedule II, 1999 CFRN

7. Section 4 (3), 1999 CFRN; Part I, Schedule II, 1999 CFRN