Recent judicial pronouncements on which level of government is constitutionally empowered to levy and collect Value Added Tax (VAT), and subsequent legislation by the Rivers and Lagos State Governments may have created a compliance nightmare for Nigerian businesses. Business are likely to witness an avalanche of demand notices from competing tax authorities, each of of whom is claiming the right to impose VAT. We have identified the facts and legal position on this issue below, as well as what each tax payer needs to know.

What we know

• The Federal High Court (FHC)[1] declared that VAT imposed by the Federal Government is unconstitutional, and restrained the Federal Inland Revenue Service (FIRS) from levying or collecting VAT (the “Judgment”).
• Rivers State and Lagos State have since enacted their respective Value Added Tax Laws (“VAT Laws”).
• Rivers State Government has stated that it will start collecting VAT from September 2021.
• The FIRS appealed against the Judgment of the FHC and advised all taxpayers to continue remitting their VAT to it. The FIRS also tried, albeit unsuccessfully, to get the FHC to stop the execution of the Judgment. The FIRS is likely to file an application at the Court of Appeal to stop the enforcement of the Judgment.
• Where business owners opt to comply with the State VAT Laws and the Judgment is later overturned, the VAT paid to the States may be irrecoverable. On the other hand, a taxpayer who continues to comply with the VAT Act and remits its VAT to the FIRS may open itself to persistent payment demands and enforcement proceedings by the States.

So who should you remit VAT to?