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You must have heard ‘VAT, ‘Wike’ and ‘Court’ more times than ‘Ronaldo, Drake or Manchester United’ in the past couple of days! Well, it’s not every day the FIRS gets served breakfast and we have set out below a mini version of the ongoing VAT storyline.

Also importantly, we have captured possible implications of the VAT saga on taxpayers, the tax adjudicatory system and the states in Nigeria as VAT Views. Enjoy!


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Still have a shady idea of what VAT is? This one’s for you:

  1. VAT is an indirect tax on the supply of goods and services in Nigeria.
  2. The VAT Act as amended (VATA) provides for a VAT rate of 7.5% and crowns the Federal Inland Revenue Service (FIRS) as the rightful authority to administer and manage everything VAT in Nigeria.
  3. The VAT Act also states that all the VAT collected by the FIRS from all states must be distributed 15% to the Federal Government, 50% to the States (including FCT) and 35% to the Local Governments.
  4. In 2020, the FIRS generated more from VAT than other taxes it administers e.g. Companies Income Tax (CIT), Petroleum Profits Tax, Stamp Duties, etc. As we have said, VAT na hot cake!


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A lawyer (no surprise there!) woke up and decided to pour sand in FIRS’ garri.

FIRS had sent his law firm (E.C. Ukala & Co.) a letter for an impending audit covering VAT, CIT, Capital Gains Tax, PAYE, etc. The matter then landed in court as Ukala v. FIRS where the FIRS’ authority to collect and administer VAT in Nigeria was challenged as unconstitutional.

In December 2020, the Federal High Court in Ukala v. FIRS held that the 1999 Constitution did not empower the National Assembly to enact laws on any tax subjects outside capital gains, incomes and stamp duties. The Court also pronounced as unconstitutional, the levying, imposition and collection of VAT by the National Assembly.

Last month, the Federal High Court (FHC) in A.G. Rivers v. FIRS similarly held that there is no constitutional basis for the imposition, demand, and collection of Value Added Tax, Withholding Tax, Education Tax and Technology tax by the Federal Government. The VATA was held unconstitutional, null and void to the extent that it authorises the FIRS or any other Federal Government Agency to demand and collect VAT.

… and thereafter, chaos reigned.

Next scenes feature Rivers State Government enacting its own VAT law of 2021 with some variations from the VATA and the Rivers State Governor, Nyesom Wike directing the Rivers State Internal Revenue Service (RIRS) to commence immediate collection of VAT from businesses within Rivers state.

Re-enter, FIRS who applied to the FHC for stay of execution of the A.G. Rivers v. FIRS judgment. This application was not granted by the FHC which re-affirmed Rivers state entitlement to collect VAT.

However, in light of its appeal lodged at the Court of Appeal, FIRS directed all taxpayers to continue paying VAT to it or face the applicable penalties and interests.

Lagos used the time to enact and pass its own VAT bill and same was signed into law by Governor Sanwoolu. Lagos also sought to be joined with Rivers State in the ongoing matter before the Court of Appeal on the basis that the State’s interest is at stake. The Court has agreed to hear Lagos’ motion for joinder in this regard. Other states like Ogun and Ibadan have also shown some measure of support in favour of State VAT collection and administration. States such as Gombe, Borno, Kogi, Katsina and Plateau are however opposed to VAT collection by the States.

Also, the FIRS received a palliative from the Court of Appeal which has ordered that all parties maintain the status quo until the hearing and determination of FIRS’ appeal against the A.G. Rivers State Judgment. This means that FIRS is to continue collecting VAT while the Rivers State VAT Law of 2021 is not to be implemented until the judgment of the Court of Appeal is given.

The dust seems to have settled, but has it really?

In the meantime, it has also been reported that Gov. Wike inaugurated a four-man tax appeal commission to focus on dealing with complaints arising from those who do not want to pay their taxes, while also prevailing on those who believe that the tax body is doing what it is not supposed to do.


The gbas gbos seems unending. The tension keeps mounting on various ends and also seems to include political undertones – these are the issues.

Various views have been provided on matters arising from the recent happenings on the administration of VAT in Nigeria. These have been expressed below:

1 VATkings

A major driver behind the state tussle for VAT power is the perceived injustice in the VAT sharing formula. This is because Commercial activities that translate to supply of goods and services – and consequently VAT, are concentrated in few states such as Lagos, FCT, Rivers, Oyo, Kano and Ogun (VATkings). These states also utilize substantial resources and bear the necessary costs of generating and maintaining VAT-yielding activities in their territories, yet other states that constitute deadweight still get a fair share of their generated VAT.

Since the VATkings account for more than 70% of the VAT collected from all the States in Nigeria, they argue that sharing the VAT revenue at a 15:50:35 ratio greatly dilutes their eventual VAT rations.

Another grouse has also been expressed against states that prohibit the consumption of beer and other alcoholic drinks but wholeheartedly partake in collecting the VAT generated from these same drinks by other states.

Ultimately, there is a view that the current VAT administration and sharing system in Nigeria encourages irresponsibility by most States as they are assured of a share of VAT yields regardless of the revenue that they independently generate. Therefore, in keeping VAT revenue within the borders of states that generate same, other states would be roused from their laxity and driven to stimulate internal trade, innovation and commerce. This would eliminate unwarranted dependence on VAT generated by other states and strengthen state internal administration structures.

2 FIRS’ Ace

FIRS has also expressed its views and has maintained the following as reasons why it is the best-positioned agency to collect VAT in Nigeria:

Input and Output VAT

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The FIRS has proclaimed that the refund and offset mechanisms which are a necessary incidence of input VAT and output VAT cannot appropriately function if there are multiple VAT administration agencies in the country as the likelihood of businesses paying VAT more than once on the same goods will be very high. “There is no country in the world where VAT works at the sub-national level” is thus FIRS new chant. (Click here to watch our previous video on how input and output VAT works.)

Administrative Unison

The VAT laws across states may differ greatly on matters such as VAT rates, filing timelines, VAT accounting, VAT Tribunals, among other things. Already, Rivers State’s rate is 7.5% while Lagos’ rate per its VAT Law is 6%.

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The FIRS contends that the issues that will arise between states in attempting to reconcile their diverse VAT regimes for goods and services supplied across their territories will be time and cost taking, and taxpayers may be at the receiving end of unsavoury experiences in this regard.

VAT Generated

FIRS also maintains that the VAT generated by States is not so substantial when compared with VAT generated from imports and Federal contract awards which is projected to account for about 50% of the total VAT generated. This notwithstanding, it states that the VAT revenue is still shared across all states regardless of their actual contributions in accordance with the VATA.

An objective view is that the points raised by the FIRS actually fly. On one hand, the ease with which taxpayers have so far deployed and benefited from the input and output VAT mechanism as handled by the FIRS cannot be denied. The offset and refund process has also reduced the VAT burden on the players in the chain of supply and the eventual burden on the final consumers.

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It is quite hard to imagine how multiple states would be able to effectively run the input/output VAT mechanism without taxpayers being at the receiving end of the administrative discrepancies/inefficiencies that are sure to arise. In light of this, the prospects of the same taxpayers being subject to different laws, regimes and administrative requirements on the same tax seem terrifying.

On the flip side, another view is that the FIRS’ position outlined above may be more suitably thrashed out at a National Tax Debate as the judgment of the Federal High Court in A.G. Rivers v. FIRS has already pronounced that the VATA, in so far as it purports to impose and authorize the collection of VAT by the FIRS is unconstitutional, illegal, null and void.

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Therefore, while the status quo is being maintained to preserve the substance of the action, the judgment of the FHC being yet to be overturned on appeal is valid and subsisting.

3 Belling the Cat

Yet another view is that the States do not have what it takes to get the job done. That is, to ensure effective and efficient collection of VAT in their territories.

A probable consequence of this is that the States will then lose even more VAT revenue, a worse off position than their current one. So, it is not enough that the judgment is given in their favour, the bigger question is ‘What Next?’. Are they willing – and able, to step up to the VAT challenge?

Given that the operation of VAT requires a highly efficient system, some argue that handing States the reins to their VATopia may not be the way to go. While this may hold some weight, opposing views maintain that States need to ‘find themselves’ and hone their structures so as to efficiently administer VAT as it is the very act of utter dependence on the Federal Government that has landed States in their current state (pun intended).

Accordingly, States need to break off so as to revitalize their processes and acquire needed capacity. This then begs the question –  while States are off on their journey of discovery, if the Judgment is given in their favour, won’t taxpayers bear the brunt of their teething problems?

4 VAT or Sales Tax?

Interestingly, the FIRS in its press conference on the VAT saga mentioned that the United States does not operate a VAT system, however, some of its states operate a Sales tax regime which does not incorporate the input/output mechanism.

The Sales tax system has held some interest and some call for the adoption of Sales tax among the Nigerian states instead of VAT. Sales tax is seen as more suitable as the States are presently not aligned to efficiently run the input/output VAT mechanism. This would seem a straighter path to follow than the convoluted one that VAT presents.

However, while the Sales tax may reduce costs of collection and the incidence of inter-state liaison thereby easing administration, the absence of the offset and refund process that is inherent in VAT will increase the eventual Sales tax burden on the final consumer. Nevertheless, it seems that the advantages that Sales tax possesses still make it a likely option for States to consider if the appellate Court rules in their favour.

5. Taxpayer Trauma

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Though it may not seem like it, Taxpayers are the MVPs in the ongoing VAT chronicles because their remittances ensure that there is even VAT to contend for in the first place. However, these seem to be confusing times for them. First was the Rivers state and FIRS issuing conflicting declarations on being the appropriate authority their VAT should be remitted to.

Next, issues arose regarding the Court of Appeal’s Order granted in FIRS’ favour. Before the Order came into circulation, it was difficult for taxpayers to place reliance on the snippets that were reported. This is because some versions seemed to suggest that the Order was one staying execution of the FHC’s Judgment in a bid by the Court of Appeal to ensure preservation of the status quo pending hearing and determination of the FIRS’ appeal. On the other hand, other reports stated that the Court of Appeal granted an order maintaining the status quo until hearing and determination of FIRS’ application for Stay of execution of the FHC’s judgment.

Bearing decisions like Ogwa v. Okpechi in mind where the Court of Appeal stated thus: “…an order to maintain status quo neither operates as a stay of execution nor a reversal of the judgment… until a specific order is made staying the execution of the decision or reversing it as this Court later did…”, taxpayers were unsure of the exact order of the Court of Appeal and how to proceed.

However, upon circulation, the express wordings of the Order stated that “the parties will refrain from taking any action to give effect to the Judgment of the Federal High Court in AG Rivers v. FIRS. This brought some clarity to taxpayers regarding immediate next steps.

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Regardless, the end to the uncertainty may not be in sight for taxpayers as they may still face some disruption if the Appeal Court rules in the favour of States. They may become subject to many VAT regimes and may see their VAT obligations compound.

In any event, Taxpayers are eager to see some haste in the Court’s proceedings given the measure of certainty that the Court’s decision will bring to their affairs.

6. Sundry Views

Some wonder if States may be content to let FIRS continue to administer VAT if it would mean that they get to keep the VAT they generate within their territories as this seems to be the sore point. A view is that the Constitution as is, as well as the AG Rivers case does not give room to the FIRS to administer VAT anyway.

However, the view has also been expressed that Item 62 of the Exclusive Legislative List which relates to ‘Trade and Commerce’ grants the National Assembly the power to make VAT type laws. Therefore, this Item debunks the States position in A.G. Rivers and their claim to VAT glory.

In another stroke, concerns have also arisen in relation to what the VAT Saga is doing to the ease of paying taxes and doing business in Nigeria as well as the complicated vibes which the whole issue may give to much-needed investors.


The Court of Appeal’s decision will determine substantial next steps that can be taken in relation to VAT and its administration in Nigeria. In the meantime, it is necessary for all stakeholders to ensure that the interest of taxpayers is protected so that they would not be driven to avoid/evade taxes as this would turn out counterproductive to all involved.

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Eniola Akinoso is the Initiator of TaxVille.

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