Implications of the Supreme Court Decision on the Imposition of Sales Tax & VAT


On 8th December 2017, in the case of A.-G. Lagos State v. Eko Hotels Limited & Anor (SC. 321/2007), the Supreme Court of Nigeria delivered judgment on the age long dispute between Lagos State and the Federal Government with respect to the imposition of Value Added Tax (VAT) and the Sales Tax on the same goods and services.

This case was initiated by Eko Hotels after it received a letter from Lagos Internal Revenue Service (LIRS) demanding that the 5% surcharge which Eko Hotels had been collecting and remitting to the Federal Board of Inland Revenue (FBIR) as VAT be remitted to LIRS as sales tax. Eko Hotels filed an interpleader summons at the Federal High Court seeking direction on who should be paid the 5% surcharge between LIRS and FBIR. Both the Federal High Court and the Court of Appeal ruled that the 5% surcharge be paid to FBIR as VAT.

Decision of the Supreme Court

Dissatisfied with these decisions, LIRS appealed to the Supreme Court of Nigeria. In resolving the issue, the Supreme Court held as follows:

  •  Sales Tax constitutes double taxation – The Supreme Court held that the Value Added Tax Act is an Act validly enacted by the National Assembly that levies a 5% tax on the sale of specified goods and services. The learned justices observed that the Sales Tax Law of Lagos State also taxes the same set of goods and services at 5%. The court held that the VAT Act already covered the field and thus the Sales Tax Law of Lagos State could not operate alongside the Value Added Tax Act. Allowing the two laws to operate at the same time would amount to double taxation because not only do both legislations cover the same goods and services, they are also targeted at the same consumer. The Supreme Court held inter alia as follows: 

I am in complete agreement with learned counsel for the 1st and 2nd respondents that not only do both legislations cover the same goods and services, they are also targeted at the same consumer. The tax has already been collected by the 1st respondent pursuant to the VAT Act. When a dispute arose as to which of the two claimants the tax collected should be remitted to, it rightly approached the court for direction. There is no doubt in my mind that it would amount to double taxation for the same tax to be levied on the same goods and services, payable by the same consumers under two different legislations. (Per Kekere-Ekun, JSC)

  • Effect when Superior Law Covers the Field – The court held that the fact that an Act of the National Assembly has covered the field does not render any State law on that subject matter void. Rather such State law is put in abeyance for the time the Act remains in force and will only take effect once the Act is repealed.

Implications of the Supreme Court Decision

  • This judgment has finally laid to rest the controversy surrounding the imposition of the Sales Tax. Whether this decision will affect the Produce Sales Tax set out in the Schedule to the Approved Taxes and Levies (Approved List for Collection) Act (Amendment) Order of 2015 as one of the taxes State Governments can collect, will depend on the scope of the Produce Sales Tax law when enacted by any State of the Federation;
  • This decision has once again raised the issue of the validity of Consumption Tax currently being imposed by many States of the Federation. Consumption Tax is levied upon the sale of certain goods and services also subject to VAT. Since the Supreme Court has held that imposition of Sales Tax and VAT on the same goods and services amounts to double taxation, the same reasoning should also apply to Consumption Tax. However, it is unclear if the issue of covering the field can arise since the legal basis for Consumption Tax differs from that of VAT.

For more information contact:

Maxwell Ukpebor, Samuel Esuga, Olumayowa Oluwole
Adebiyi Tax & Legal
House 20 Wema Terrace
Udi Street Ikoyi

+234 803 960 0520

This Legal Alert contains information on tax /legal issues. It does not constitute legal or professional advice on such issues. Where specific legal advice is needed, the services of a solicitor/tax adviser should be sought.

Pin It on Pinterest

Share This