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A Federal High Court sitting in Port Harcourt has ruled that it is wrong for the Federal Government and its agencies to collect taxes that have been constitutionally reserved for state governments to collect.

Justice Stephen Dalyop Pam in a judgment delivered this Monday ruled that taxes such as Value-Added Tax, VAT, and Personal Income Tax are the exclusive reserve of state governments to collect.

The question of whether or not the Federal Inland Revenue Service, FIRS, has the powers to administer taxes not expressly covered by the exclusive legislative list has for a while now been a source of contention between the Federal and State Governments.

The Rivers State government approached the Federal High Court in 2020 seeking a number of declarations among which are who has the powers to collect capital gains tax, income or profit tax of persons other than companies within the territory of Rivers State as well as who exercises the power to collect stamp duties on documents or transactions within the territory of Rivers State and chargeable under items 58 and 59 of the Exclusive Legislative List and item 7 of the Concurrent Legislative List of the Constitution of the Federal Republic of Nigeria 1999 as amended.

It argued that there is no constitutional basis for the imposition of, the demand of, and collection of VAT, withholding tax, education tax, and technology levy in Rivers State or any other state of the federation, as the constitutional powers and competence of the Federal Government, is limited to the taxation of incomes, profits, and capital gains which do not include VAT, withholding tax, education tax, technology levy, or any other species of sales tax or levy other than those specifically mentioned in items 58 and 59 of the Exclusive List of the Constitution.

In answering the questions raised by the suit, the court first addressed some issues raised by the FIRS and the Attorney General of the Federation, who are the first and second defendants in the matter.

One was the question of whether or not to refer the matter to the Court of Appeal to which the Federal High Court answered that doing so would amount to transferring the matter in its entirety to the appellate court without the court first assuming jurisdiction on the suit. 

In assuming jurisdiction, therefore, the court also dismissed the defendants’ argument that the proper parties were not joined in the suit, paving way for the court to then examine the Rivers State case. 

While counsel for the FIRS and the Attorney General of the Federation declined to speak on the judgment, counsel to the Rivers State government saluted the courage displayed by the judge on an issue which he said will further strengthen the rule of law.