The Lagos State Government has asked the Supreme Court to nullify the power of the Federal Government to collect Value Added Tax in the 36 states of the federation.

Governor Raji Fashola

It argued in the brief it filed on July 7, 2008, that the Federal Government lacked the power to make a law for the collection of VAT in the states, except in Abuja which is the nation’s capital.
A copy of the brief was obtained by our correspondent in Abuja on Sunday.

Joined as defendants in the suit are the Attorney -General of the Federation and the Attorneys-General of the states. A team of Senior Advocates of Nigeria led by Chief Ebun Sofunde is handling the case on behalf of the state. The other SANs are Mr. Rickey Tarfa, Prof. Yemi Osinbajo, Mr. M.I. Igbokwe, Mr. Charles Uwensuyi-Edosomwan, Mr. M.D. Belgore. and Prof. Taiwo Osipitan.

In the brief the state asked the apex court for the following orders:
- A declaration that the VAT Act Cap V1 Laws of the Federation 2004 is, to the extent that it provides for the imposition and collection of taxes on goods and services in its territory (and other states), outside the legislative competence of the National Assembly and is, therefore, unconstitutional; and
- A perpetual injunction restraining the Federal Government by itself, its servants or any of its agencies from continuing to give effect to the provisions of the VAT Act to impose and collect taxes on goods and services within the state.

In the brief filed in support of the case, the state said, “Our federalist system of government has enshrined in the constitution that the legislative powers of the federation are shared between the Federal Government and the state governments. “This sharing arrangement is operated through the Exclusive and Concurrent Legislative Lists where legislative spheres of activity between the Federal Governments are to be found.”

It also argued that by virtue of Item 59 of the Exclusive Legislative list, the National Assembly could only make laws in respect of matters relating to ‘taxation of incomes, profits and capital gains’.
The state pointed out that, “The above provisions as indicated by the quoted words relate to tax or duty imposed on ‘capital gains, incomes or profits’. No other mention of taxation is made anywhere else in the Exclusive and Concurrent Legislative Lists or elsewhere in the constitution.”
It argued further that any matter not included in the Exclusive and Concurrent Lists became residual matters left only for states to legislate on.

It said, “The plaintiff submits further that Item 59 expressly confers legislative competence on the National Assembly on taxation with regard specifically to taxation of incomes, profits and capital gains.
“This express provision does not admit of an implication to include VAT, a tax on goods and supply of services.”

In a supporting affidavit attached to the originating summons, the state averred that it was “entitled, to the exclusion of any other body, to collect any tax charged on the supply of all goods and services within its territory under any law passed by its House of Assembly and no other body or government was entitled to a share of such tax as may be collected.”
The state also asked the Supreme Court to hold that the Federal Government had no power to make the VAT Act. It consequently asked the court to nullify it.

The Federal Government has already filed a preliminary objection to the suit. In the objection, it asked the court to throw out the suit for want of jurisdiction. It also argued that the original jurisdiction of the Supreme Court was not properly invoked and that the action complained against by the state was that of its agency (the Federal Inland Revenue Service). The Federal Government added that for the Supreme Court to have jurisdiction, there must be a dispute, which must be between it and the state.

It described the suit as an abuse of court processes. The proceeds from VAT were shared among the three tiers of government — Federal Government, states and local governments — as per a distribution formula adopted on January 1, 1999. Under the formula, the Federal Government gets 15 per cent; states and the Federal Capital Territory, 50 per cent; and local governments, 35 per cent.
But on April 16, 2007, the principle of derivation was adopted in sharing the VAT proceeds. With the principle, states and the FCT as well as the LGs started getting 20 per cent each.

Statistics obtained from the FIRS show that between 2000 and 2007, the Federal Government generated N191.4bn from VAT.

Source: Punch