The Federal High Court in Abuja has restrained the Delta State government from enforcing a five per cent consumption tax on transactions covered by the federal Value Added Tax (VAT) regime.
The court nullified provisions of the Delta State Hotel Occupancy, Restaurants and Departmental Stores Consumption Tax Law, 2017, which imposed the tax.
Justice Peter Lifu, in an October 9, this year judgment, a copy of which was obtained yesterday, declared the challenged provisions invalid.
He set aside Sections 3 and 4 of the Delta State law, as well as Section 7(b), Item 13 of the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order No. 77 of 2015.
The court also issued a perpetual injunction restraining the state Attorney-General and Commissioner for Justice, the state Board of Internal Revenue, and their agents or representatives from implementing or enforcing the affected provisions.
The suit was instituted by the Nigeria Employers’ Consultative Association (NECA) and Retail Supermarkets Nigeria Limited, which operates Shoprite stores, against the Attorney-General of the Federation, state Attorney-General and Commissioner for Justice, and state Board of Internal Revenue.
The plaintiffs commenced the action through an originating summons filed by Dr Joseph Nwobike (SAN) of Osborne Law Practice, who led their legal team, with G. D. Nwani also appearing.
J. O. Obaje represented the Attorney-General of the Federation, while Isaiah Bozimo (SAN) appeared for the Delta State defendants.
NECA, which represents more than 480 corporate members, and Shoprite challenged the constitutionality and validity of the disputed provisions. They argued that the additional consumption tax created an overlapping burden on goods and services already subject to VAT.
They contended that the state could not lawfully impose a separate consumption tax that substantially overlapped with the federal VAT regime, as this would increase the tax burden on businesses and consumers.
The plaintiffs sought declarations that Sections 3 and 4 of the Delta State law, which provide for the imposition and collection of the consumption tax, were inconsistent with the federal VAT framework and exceeded the state’s legislative competence to the extent of the alleged overlap.
They also challenged Section 7(b), Item 13 of the Schedule to the 2015 amendment order, arguing that it could not validly authorise a separate consumption tax on transactions already covered by VAT.
According to the plaintiffs, the levy imposed an additional five per cent charge on specified goods and services supplied by restaurants, supermarkets and departmental stores. Shoprite, which operates retail outlets in Delta State and other parts of Nigeria, said it adversely affected its business.
The judgment followed the dismissal of preliminary objections by the Attorney-General of the Federation and the Delta State defendants, who had challenged the court’s jurisdiction. Justice Lifu held that the plaintiffs’ challenge to the validity of the federal amendment order brought the dispute within the court’s constitutional jurisdiction under Section 251 of the Constitution.
In determining the dispute, the judge examined whether Delta State could lawfully impose a separate consumption tax on transactions already covered by the federal VAT regime. He considered the Supreme Court’s decision in Attorney-General of Lagos State v. Eko Hotels Limited (2018) 7 NWLR (Pt. 1619) 518, which addressed the relationship between VAT and state consumption taxes.
The defendants had argued that the two taxes operated differently, with VAT collected at multiple stages of a transaction and the state consumption tax applied at a single stage. They further contended that Section 4 of the Delta State law excluded VAT from the computation of the consumption tax, thereby preventing double taxation.
However, Justice Lifu rejected the argument that differences in the methods of assessment and collection were sufficient to justify the additional levy.
He also considered Section 4(5) of the 1999 Constitution, which provides that where a state law is inconsistent with a valid law enacted by the National Assembly, the federal law prevails to the extent of the inconsistency.