VAT- Hotel Owners, FIRS head for Showdown
The directive by the Lagos chapter of the Incorporated Trustees of the Hotel Owners and Managers Association to its members to reject a request by the Federal Inland Revenue Services or its agents for collection of Value Added Tax from their businesses has again reignited the endless battle against VAT in the country, writes Festus Akanbi
Last week, the Lagos chapter of the Incorporated Trustees of the Hotel Owners and Managers Association (HOMA) directed its members to treat with disdain any request made by the Federal Inland Revenue Services (FIRS) or its agents for collection of Value Added Tax (VAT) from their businesses.
The HOMA, which is made up of hotels, restaurants, fast food outlets, night clubs, and related hospitality outfits, said it had been resisting since 2018, efforts of the FIRS to levy VAT on the businesses of its members contrary to the judgment of a Federal High Court in Lagos, that declared such levy as illegal, null and void.
HOMA's position contained in a statement by the association's President and Director General, Mr. S.O. Alabi and Mr. Adeniyi Ologun respectively titled: "Valued Added Tax Automation: Looming Apparent Injustice on Our Members," noted that the association had been having a running battle with the FIRS in the last four years in regards to the validity of VAT.
It stated: "Hence, in the suit filed by our association at the Federal High Court in suit number FHC/L/CS/360/2018, the registered trustees of HOMAL Vs AG Lagos State and FIRS, the issue of the validity of VAT or Sales Tax was brought before the court. In the said suit, the Federal High Court nullified the application of VAT in the hospitality sector. However, an appeal was filed by the FIRS, and subsequently, a stay of execution was granted pending the outcome of the appeal filed."
How It Started
Recall that delivering judgment in a suit seeking to restrain the Attorney General of Lagos State from enforcing the Hotel Occupancy and Restaurant Consumption (Fiscalisation) Regulations Law (HORC), 2017, Justice Rilwanu Aikawa of the Federal High Court in Lagos had in 2019 barred the FIRS from enforcing VAT provisions on goods and services consumed in hotels, restaurants and event centres in Lagos State.
In the suit, HOMA had argued that VAT Act has covered the field. It, therefore, asked the court to declare that by Section 7, of the VAT Act, the second defendant (FIRS) was the only lawful and constitutional agency charged with the administration and management of consumption tax generally and particularly in Lagos State.
The Registered Trustees of HOMA had filed an originating summons asking the court to determine "Whether the VAT Act regulating imposition of tax on consumption of goods and services has not covered the field on taxation of goods and services consumed in hotels, event centres, and restaurant in Lagos State.
It also asked the court to determine whether, by Section 7 of the VAT Act, the second defendant (FIRS) is not the only lawful and constitutional agency charged with the administration and management of consumption tax generally and particularly in Lagos State.
In delivering the judgment, the judge dismissed the suit and held that it was lacking in merit, adding that the plaintiff was obliged to comply with the HORC Law 2009 and the HORC Regulations 2017.
The court also raised two issues by herself; On whether the Federal High Court had the jurisdiction to pronounce on the constitutionality of VAT, the court resolved that it has jurisdiction.
Aikawa also held that the issue of the powers of the minister to amend the schedule to the Taxes and Levies (Approved List for Collection) Act was not in dispute before the court and so no pronouncement could be made on it.
The court in dismissing the originating summons, as lacking merit and resolving the questions and reliefs sought in favour of the first defendant, held:
"That consumption tax is not stated in either the exclusive and concurrent legislative list, in the Constitution of Nigeria, therefore, the absence on the concurrent and exclusive lists, puts consumption tax on the residual list, which is within the legislative competence and powers of state governments.
"That VAT Act can't cover the field over what the federal government has no power to legislate upon, under the constitution, therefore the determinant factor in the issue of covering the field, is whether there is the power to make the Law. The provisions of the VAT Act relating to consumption tax are inconsistent with the Nigerian constitution.
"The Minister of Finance has corrected the anomaly, by including consumption tax in the list of taxes collectible by the state government, therefore, the responsibility for collecting consumption tax lies on the state government.
"The provisions of Sections 1, 2, 4, 5 & 12 of VAT Act are in breach of the 1999 Constitution and the plaintiffs are obliged to comply with the HORC Law 2009 and the HORC Regulations 2017.
"FIRS are barred from enforcing VAT provisions as it relates to a consumption tax on goods and services consumed in hotels, restaurants, and event centres in Lagos State, " the judgment read.
Dissatisfied with the decision, the FIRS proceeded to the Court of Appeal with an appeal and subsequently secured a stay of execution pending the outcome of the appeal filed.
Jumping the Gun
HOMA lamented that the FIRS instead of ensuring prompt prosecution of the appeal, and knowing that the court had given it the go-ahead to pay consumption tax on goods and services consumed in hotels, restaurants, and event centres to Lagos State by the HORC Law 2009 and the HORC Regulations 2017, appointed Messrs Metro Limited to handle the installation of VAT collection software package on our members' businesses, which would amount to double taxation.
Recall that after the judgment of the Federal High Court, the Lagos State Government urged all hotels, restaurants, and events centres operators in the state to respect the decision of the court on the Lagos State Hotel Occupancy and Restaurant (Fiscalisation) Regulations 2017.
Judicial Backing
The Director, Public Affairs, Lagos State Ministry of Justice, Mr. Kayode Oyekanmi, who signed the statement, explained that the court dismissed the claim of the plaintiffs that "since the VAT by FIRS contains provisions relating to the consumption, it had 'covered the field' and as such, no state law can impose any similar tax."
"The judgment stated that Lagos State is the only constitutional and lawful body permitted to assess, impose and collect tax from customers for goods and services consumed in hotels, restaurants, and event centres in the state. The court granted an order of perpetual injunction to restrain the Federal Inland Revenue Service from collecting tax from customers for goods and services consumed in hotels, restaurants, and event centres in Lagos State.
"All hotels, restaurants, and events centres managers and operators are hereby enjoined to henceforth comply with the provisions of the Hotel Occupancy and Restaurant Consumption Tax Law and regulations of Lagos State as declared in the judgment of the Federal High Court," Oyekanmi said.
HOMA's Directive to Members
This perhaps is why HOMA has directed its members to ignore FIRS' directive, adding that any attempt to deploy automated tax administration technology to capture taxes that the court had adjudged not to be legally entitled to collect, will be an aberration and therefore, null and void.
Its statement last week read: "Hence, in the suit filed by our association at the Federal High Court in suit number FHC/L/CS/360/2018, the registered trustees of HOMA Vs AG Lagos State and FIRS, the issue of the validity of VAT or Sales Tax was brought before the court. In the said suit, the Federal High Court nullified the application of VAT in the hospitality sector. However, an appeal was filed by the FIRS, and subsequently, a stay of execution was granted pending the outcome of the appeal filed."
It stated that given this, it sought legal redress in June 2021 in suit FHC/L/CS/680/2021, adding that the main relief sort in the case is for the court to determine the legality of the proposed software installation.
The association, however, expressed surprise that despite the pendency of the case, its members were being invited by the FIRS for debriefing in preparation for the installation of the said software in their respective places of business.
The HOMA stated that since it was not unaware of a recent amendment of certain laws on the administration of tax vide the power granted to the FIRS to deploy automated technology to taxable entities, "but our position is that such software can only be deployed to capture taxes which the FIRS are validly entitled to collect."
Maintaining the Status Quo
The association stated emphatically that, "any attempt by FIRS to deploy automated tax administration technology to capture taxes which court had adjudged FIRS not to be legally entitled to collect, will be an aberration and therefore, null and void."
The HOMA said it had been constrained to instruct its lawyers to draw the attention of the FHC, which is currently handling the suit, to caution the FIRS from taking steps that could defeat the reliefs being sought in the court.
It said: "The legality of the installation of VAT automated collection software is still pending before the FHC and the court should be allowed to decide appropriately."
