Daily Independent Online.
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Thursday, July 01, 2004.
Lagos government’s sales tax amounts to double
taxation, says Abayomi
Put
manufacturers operating in Lagos State together and between debates on low
capacity utilisation and the poor operating environment, their discussions will
hub on one thing - the controversial sales tax. The Lagos State
government and manufacturers are presently at loggerheads over the
formers’ insistence to impose the tax. The issues involved here are
pretty knotty: The manufacturers, under the auspices of the Manufacturers
Association of Nigeria (MAN), argue that the said tax is not just
unconstitutional and unfair but amounts to double taxation since it is the same
as Value Added Tax (VAT), which they are already paying. Interestingly, the
state government thinks otherwise. And to give teeth to its resolve, it was
favoured in a judgment on the matter by the Lagos High Court, which validated
the tax. Not satisfied with that judgment, MAN proceeded to file an appeal
against it. Yet, the dust is yet to clear. Penultimate week, the state
governor, Asiwaju Bola Tinubu, issued a two-week ultimatum to the manufacturers
to adhere to the court ruling and pay the tax or have their premises sealed up.
In a bid to unravel the facts
behind the matter, Development Reporter, Ntai Bagshaw, spoke with MAN’s
counsel, Dr Tunji Abayomi, principal partner in Tunji Abayomi & Co., Lagos.
Excerpts:
Update on the
controversial sales tax
Where we are on the sales tax is at the
level of appeal. Let me give you the background of the case. There was a Value
Added Tax (VAT) law, which was brought about, I believe in 1992/1993. This law
in essence took over taxation of consumer goods. And because it was a military
government, it basically covered the state. In other words, it didn’t
leave any room for the state. Subsequent to that, there was what we called tax
levies decree which essentially said that you can only tax in this manner and
this product. Those are all federal laws. In the meantime, there was in
existence states sales tax but
those sales tax could not be operational because the Federal Government
appeared to have covered the state. You could argue for some inconsistencies
but the state laws could not operate because the then Federal Government was
making laws for the entire federation. What now happened was that, I think
Lagos State was dissatisfied with its receipt of VAT and went to court. The
governor then made an order under the enabling sales tax law of Lagos State and
now created a schedule of items that are to be taxed. Consumers must place that
certain percentage of tax on those items. The problem is that under section 3
of that law, it says that manufacturers or suppliers as agents of the state
will be required to collect this money and pay to Lagos State. The
Manufacturers Association of Nigeria (MAN), obviously uncomfortable with
arrangement - because they are already paying on those goods via VAT - then
went to court to say that this is double taxation. That the law is inconsistent
with VAT and therefore cannot stand, and so on and so forth.
At a point there was also the issue of
the constitutionality of the law itself. We wanted to raise additional argument
to say that the law is unconstitutional. The judge said ‘‘no I have
reserved case for ruling, I will not allow that, and refused.’’ And
then they went ahead and said that Lagos State can indeed pass the law and that
the Federal Government cannot impose tax on goods that are consumed in Lagos
State. But it didn’t specifically say how. It said intra-state. But that
Federal Government can impose tax on inter-state goods. But it didn’t
define what inter and intra-state is. It merely used those expressions. So
there is confusion about that. It also did not say that this is the percentage
of tax that you can charge nor did it recognise the modality for that taxation.
We were dissatisfied with the decision of the court. So we then filed appeal on
several grounds. And then we also filed a motion for stay of execution. In
addition we also brought an application for injunction in the court of appeal.
Lagos State in the meantime initiated
action against five companies for judgment based on its assessment of the tax
under this new tax regime. We also are defending those cases. If the court gave
them judgment then they can execute but if the court does not give them
judgment then they cannot execute anything. Because strictly speaking, the
judgment of Falase that said Lagos State can pass this law didn’t say
that this is the amount of money against any company warranting any process of
execution. But now Lagos says that unless you pay your premises will be sealed
up within two weeks.
There is a problem with that. In the
first place, pay what? If it is those companies that are assessed, you are in
court already asking for judgment against them and until that is concluded, you
cannot be talking of payment. If it is against companies you have not assessed
any charges, then what are they to pay?
Five manufacturers
taken to court by the Lagos State government
The companies were taken to court during
the Falase judgment. They had sent assessment to them and said they should pay.
Those ones didn’t, so they went to court to get the judgment of court
purportedly so that if they get the judgment they can then execute because they
now felt they would stand on a proper ground. That also is a test case so to
say. Because if they win in that case, it would mean that the law can be
executed. But if they don’t, then there is a problem.
In the meantime, there is also a case in
the Federal High Court. There are cases there. Because Falase did say that the
two taxes are double taxation. That you cannot have double taxation - one
must go. Now the question then is that if this is the case, which of the taxes
will subsist in Lagos State? Is it the Federal Government VAT or the Lagos
State Sales Tax? The manufacturers need to know which one they will pay.
Really, the problem is not that they won’t pay tax as they are already
paying the tax. In the meantime one of their members - Eko
l’Meridien in which Lagos State has interests - went to court. And
the Federal High Court said, look I will preserve status quo ante bellum. Keep
paying to the Federal Government; don’t pay to the state government until
this issue is decided. They went on a separate action in the Federal High
Court. So you can see a whole scenario building up on this matter alone.
Stay of execution.
Governor Tinubu says the Falase judgment and the appeal did not include a stay
of execution. That he is acting within the ambit of the law to enforce the law.
I think the governor misunderstands the
issue. You can apply for a stay of execution on an appeal but you cannot say
there is no stay of execution until the court has decided it. There is an
appeal; you now bring an application for stay. Until the court has decided that
stay, you can’t say the court didn’t grant a stay. Now, if you go
ahead and execute, that will violate the norms of legal practice and that is
exactly what Lagos State sought to do in Ojukwu v. Governor of Lagos State.
In that case, there was an appeal against the decision and there was an
application for stay like in this case. But Lagos State went ahead and sought
to execute - to evict by force. The court said you couldn’t do that. Once
there is already an application for stay and there is an appeal, you must stay
until the court decides. And it makes sense. If, for example, we are fighting
over a goat and the court gives you the goat. And I say no, that is not right
and I appeal as I have a right to do so. If you now say you can execute, the
effect of that is you can kill the goat. If you kill the goat now, then what is
the essence of my right of appeal that is granted by the constitution? So what
Lagos State is saying is not in conformity with the rule of law.
The position of the
Federal Inland Revenue Service (FIRS) on this issue
Their position is that no, you must go
on with VAT. In fact, the Federal Government has just joined in the appeal. We
have just been served. Now, the Federal Government is seeking to join as a
party in the appeal in the Court of Appeal against the Falase ruling. They are
saying that they want to join as an interested party. That they are aware that
Falase has no jurisdiction. So the mater has gained another interesting angle.
The controversy
surrounding inter/intra-state goods
This is a very interesting one. The
position of Falase is that when you come to Lagos State, it is relying on a
Supreme Court decision in Aberuagba’s case,
which was decided before VAT came into existence and also before the tax levies
decree. The court considers goods within Lagos State as intra-state. But the
complication here is that what is intra-state and what is inter-state? It has
to be decided. Does inter-state entail goods from other states to Lagos and
from Lagos to other states or does it just mean goods from other states to
Lagos State. Lagos State appears to be claiming that inter state only entails
goods coming to Lagos State and not goods going from Lagos State. In fact,
Lagos State is interpreting intra-state to mean all goods manufactured and
supplied in Lagos State. Even if it is supplied to somebody who is taking it
into inter-state commerce, it is still intra-state as far as Lagos State is
concerned - as long as it is produced in Lagos State. Even if it is produced
for export, it is still intra-state; that is the view of Lagos State. So you
can see the complication because if that is the case, it is going to pose
tremendous issues for all the other states because it means that every state
can come up with this Sales Tax. And since all of them are looking for money,
they are looking at Lagos State to see where this matter is going to go. They
think that the matter will help them to decide where to go. So this is the
problem.
Next move to be
taken following the ultimatum given by Governor Tinubu.
We are considering applying to court to injunct
Lagos State from carrying out its threat.
The ultimatum
expires on Tuesday (this week).
Well, we will initiate an action before
then if we deem it proper.
What the action will
contain.
The
action is to injunct him from trespass. Because even if
he has any action he cannot just go into the premises. He can only go into the
premises by the order of the court. And I don’t think that the Lagos
State Sales Tax allows him to just walk into your premises and seal the place
up.
How the matter will
eventually play out.
It is very interesting. But I think it
is going to take a very long and heated battle that will end in the Supreme
Court. If it favours us, they will appeal. If it favours them, we will appeal.
Chances of the
Lagos State government backing out of the matter.
I don’t think so. The state
government definitely wants to go to court. They are not going to back out. So
we are likely to end in the Supreme Court. It is going to be a long battle.
