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.
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.
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.”
Kayode Tokede writes on the role of the Nigerian Exchange Limited (NGX) in engineering economic development for wealth creation
It is often said that the overall growth of an economy depends on how efficiently the stock market performs in its locative functions of capital. This is because when the stock market mobilises savings, it simultaneously allocates a larger portion of the same to firms with relatively high prospects as indicated by their returns and level of risk.
The significance of this function is that capital resources are channelled by the mechanism of the forces of demand and supply to those firms with relatively high and increasing productivity thus enhancing economic expansion and growth.
Hence, the stock market is regarded as a vital component for economic growth and development as it enables both corporations and the government to raise long-term capital, which allows them to finance new projects and expand other operations.
It is worthy to note that NGX – subsidiary of Nigerian Exchange Group Plc (NGX Group), formerly called The Nigerian Stock Exchange (NSE) – facilitated capital raising in 2021 of over N7.13tn across asset classes for both public and private corporations.
There has been a steady increase in new issues since 1996 where new issues were valued at N5.85 billion in 1996 but they rose by about 532 per cent to N37.198 billion in 2001. This improved to N61.284 billion in 2002, N180.079 billion in 2003, while the years 2004 and 2005 accounted for N195.418 billion and N552.782 billion respectively before it crossed the trillion naira mark to hit N1.935 trillion in 2007 when the market was at its peak.
Nigeria’s Securities Market Renaissance
It is safe to say that the nation’s bourse has undergone a serious renaissance in quite a decade in the legal structure, trading system, clearing, settlement and delivery system, the quantum of listed companies and securities, corporate governance and upward trend in the deployment of technology.
Following regulatory approvals from the Securities and Exchange Commission and Corporate Affairs Commission, NSE announced its demutualisation in March 2021 giving rise to NGX Group Plc and its three subsidiaries – NGX, the operating Exchange; NGX Regulation Limited (NGX RegCo), the independent regulatory arm; and NGX Real Estate Limited (NGX RelCo), the real estate company. Precisely, on May 17, 2021, the exchange virtually unveiled its new structure tagged “Stock Africa Is Made Of” to amplify NGX Group’s positioning and commitment to the African financial markets as a leading capital market infrastructure provider, connecting Nigeria, Africa and the world, as well as spotlight the growth potential of the African continent.
Since demutualisation, NGX has recorded major market activities across asset classes. Notable among these transactions is Emzor Pharmaceuticals’ N13.7 billion 5-Year Series 1 Fixed rate Senior Unsecured Bond listed exclusively on NGX in April 2021 and is the first public instrument issued by the company. Also notable is BUA Cement’s debut listing of an N115 billion Bond issue, the largest of many corporate debt issuances in the history of the Nigerian capital market; the listing by the introduction of NGX Group on the main board of NGX; and the public offer of MTN Nigeria’s shares to both institutional and retail participants.
On the trading side, the NGX All Share Index (ASI) settled at 42,262.85 basis points with a Year-to-Date return of 4.9per cent as of 24 December 2021, and it is expected that the year will close in the green. Being a multi-asset Exchange, NGX also recorded gains in other asset classes, with the total market capitalisation being N42.05trillon as of the same date. In the fixed income space, capitalisation grew 12.81% from N17.50trillion in 2020 to 19.74trillion in 2021 as a result of increased listing activity from the Federal Government and Nigerian corporates.
Furthermore, the value of the securities lending market rose to N513.10million in 2021 up from N95.18million 2020. The breakdown of the companies that pledged the shares shows as Zenith Bank Plc with 77.33 million shares, MTNN with 8.89 million shares, Dangote Sugar with 43 million shares, GTCO with 31.09 million shares and UBA pledging about 45 million shares.
As part of its efforts to drive strategic growth in the Nigerian Capital market and provide a vibrant Exchange for corporates across all industries, NGX brought together a cast of leading industry experts to dimension the digital transformation of the ﬁnancial services space with a keen focus on the Nigerian capital market at its inaugural NGX TechNovation Conference. The virtual event was themed, Technology, Platforms and Markets
Speaking during the conference, the Chief Executive Ofﬁcer, NGX, Mr Temi Popoola, CFA noted, “We are committed to developing innovative solutions that drive, not just internal efﬁciency at the exchange but that support wider efforts by various stakeholders at ensuring a full digitalisation of the Nigerian capital markets. As such, we are extending our platform competencies in line with our strategic aspirations while leveraging best in class digital innovation to deliver value to our stakeholders and markets.”
NGX went on to host the first-ever NGX Capital Markets Conference in Abuja where it called for increased collaboration among key players in the nation’s economy towards driving productive investments that would accelerate an elevated and digitized capital market. Themed the “The Future Ready Capital Markets; Innovating for Nigeria’s Sustainable Recovery” the Conference, brought together leading policymakers, financial experts, business leaders, investors, international development partners and regulators, led by the Vice President, Federal Republic of Nigeria, His Excellency, Professor Yemi Osinbajo, SAN.
Sustainability at NGX
NGX displayed its commitment to sustainability and fostering the growth of sustainable financial products, which integrate the financial risks and opportunities associated with climate change and other environmental challenges through several programmes.
First, NGX collaborated with the International Finance Corporation (IFC) to launch the Nigeria2Equal Peer-Learning Platform and the ﬁrst-of-its-kind Gender Gap Assessment Report, themed, Gender Equality in Nigeria’s Private Sector. The launch of the Peer-Learning Platform and Gender Gap Assessment Report are key milestones of the collaboration between NGX and IFC for the Nigeria2Equal programme. The two- and half-year programme aims to reduce gender gaps in Nigeria’s private sector through research and sharing of best practice case studies as part of a Peer Learning Platform, as well as ﬁrm-level advisory support to help companies implement gender action plans.
Also in collaboration with IFC, NGX hosted the Sustainable Finance Training 2021 where it was revealed that the value of Nigeria’s green bonds market has grown to N55.52 billion within 2017 and 2021.
New Products and Services
In keeping with its strategic aspirations to democratize finance through technology, drive listings growth, improve customer experience and attract new sources of liquidity, NGX has embarked on several market development activities in 2021.
Notable among these is the release of the enhanced version of the NGX mobile app, X-Mobile. The app – which was first launched in 2019 in its Beta state – is a dynamic and user-friendly mobile app, designed to enhance investors’ participation in the Nigerian capital market. Now accessible in the Google Play Store and Apple iOS Store, X-Mobile provides market participants, especially retail investors, with convenient, faster and real-time access to information about NGX, its listed securities and Trading License Holders.
Furthermore, NGX partnered with MTN Nigeria and other capital market stakeholders to deliver the first-ever end-to-end digital offer in the Nigerian capital market. Through technology, NGX was able to facilitate the simple and quick purchase of securities on any mobile device in under three minutes. Certainly, this is a unique opportunity for wealth creation for millions of Nigerians through the capital market and the market anticipates the use of forward-thinking technology for even more ground-breaking transactions.
Significant strides have also been made as NGX inches closer to the launch of Exchange Traded Derivatives in the market. The Exchange began its journey to launching ETDs in 2014 with a feasibility study which showed that the Nigerian capital market is indeed ready for the more sophisticated investment products ETDs will introduce. Since then, several milestones have been achieved including the ‘Approval-in-principle’ from the Securities and Exchange Commission making NGCL the premier Central Counterparty Clearing House (CCP) in Nigeria.
It has been an exciting launch into the NGX era and the market has certainly begun to reap the benefits of the demutualisation. It would be recalled that The Exchange celebrated 60 years of trading in 2021 and it is evident that the next 60 years and beyond will be built on innovation and agility.