Value Added Tax in Nigeria: An overview

The administration and management of Value Added Tax (VAT) assessment and collection in Nigeria have long been under the control of the Federal Inland Revenue Service (FIRS), an agency of the Federal Government. In the case of AG Rivers State v. AG Federation, which was decided by the Federal High Court, Port-Harcourt Division, on August 9, 2021, the FIRS was disqualified from handling the VAT system in Nigeria.

What is Value Added Tax (VAT)?

Value Added Tax or VAT is a consumption tax that is applied to all goods and services delivered in Nigeria or imported into the country. Individuals, businesses, and governmental organizations are all required to pay VAT, which is currently levied at a rate of 7.5% following the Finance Act 2022. 

VAT is not applied to many products and services, such as medical and pharmaceutical products, medical services, basic food items, books and educational materials, exports, etc. The authority to manage the collection of VAT from taxable persons in Nigeria is granted to the FIRS by the VAT Act until the case between Rivers state and the Federal Government.

The VAT issue between states and the federal government

The Federal High Court gave a literal interpretation of the Constitution of the Federal Republic of Nigeria, 1999, as amended (Constitution) in the case of AG Rivers State v. AG Federation, holding that the National Assembly is only authorized to enact laws relating to stamp duties and the taxation of income, profit, and capital gains. 

The court further ruled that, following the Constitution, neither the Federal Government nor any of its agencies may impose or collect VAT or any other tax that is not expressly mentioned in the Constitution.

The VAT Act and its amendments are effectively nullified by the Federal High Court’s ruling unless it is overturned by a higher court.

Therefore, it follows that individual states have the right to pass laws governing the administration of VAT and to designate their tax administrations to oversee the collection of taxes within their borders. However, the Federal Capital Territory will still be subject to the provisions of the VAT Act, and the FIRS will continue to be in charge of managing its VAT. 

Additionally, the VAT from each state will no longer be combined into the Federation Account; instead, each state will be entitled to the income resulting from the VAT it collects.

The Lagos Value-Added Tax Law

States like Lagos State and Rivers State have rushed to the drawing board to create their VAT laws that will regulate the administration of VAT in the state as a result of the Federal High Court’s decision regarding VAT.

A bill to impose and charge VAT on specific goods and services as well as to establish rules for VAT administration in Lagos State, for instance, has been passed. The Lagos State House of Assembly has approved the value-added tax bill (the “Bill”), which now awaits the governor of Lagos State’s approval. The following highlights some of the bill’s most important clauses.

1. Tax rate reduction

the tax rate is reduced to 6% of the value of goods and services from the current rate of 7.5% mandated by the Finance Act of 2022.

2. VAT administration

In Lagos State, VAT is managed by the Lagos State Internal Revenue Service (LIRS). Within six months of the start of the VAT Law, all taxable individuals are required to register with the LIRS.

The penalty for noncompliance is a fine of N50,000 (fifty thousand Naira) for the first month of default and N100,000 for each subsequent month. Returns to the LIRS: Taxpayers must submit returns to the LIRS by the 21st day of the month following the delivery of goods and services, at the latest. For every month of noncompliance, the offender will be subject to a fine of N500,000 (five hundred thousand Naira).

3. Treatment of non-resident businesses

Businesses that operate in Lagos State but are not based there must register with the LIRS using the address of the party with whom they have an active agreement to provide goods and services.

The non-resident business must include VAT in its invoice, and the recipient of the services or the recipient of the goods.

4. Establishment of the Value Added Tax Tribunal

The bill also creates the Value Added Tax Appeal Tribunal, which will help the LIRS settle disagreements relating to tax assessments. 

5. Sharing formula for VAT revenue

According to the bill, local and state governments will receive a 75% to 25% split of the VAT revenue that the Lagos State Government receives. 

The Court of Appeal and the VAT issue

Despite the Federal High Court’s denial of a stay of execution, the Court of Appeal in Abuja granted an injunction pending appeal, directing the parties to maintain the status quo ante in response to a request made by the FIRS.

The Court of Appeal then put the case on hold while it heard arguments regarding the Lagos State Government’s application for a joinder and the FIRS’s application for a stay of execution. Both Rivers and Lagos States were required by the injunction to stop enforcing their VAT laws until the Court of Appeal rules.

On July 1st, 2022, the Court of Appeal ruled in favour of the federal government to collect VAT taxes. According to the Court of Appeal, the VAT is contained on the concurrent list, and the federal government’s legislation on the VAT has covered the field.


The VAT collection regime leaves players in the business community in confusion as states jostle the federal government for a chunk of the VAT. States have long complained about funding concerns and the unfair manner of revenue sharing by the federal government. The VAT revolution was seen by many states as an opportunity to gain additional revenue for the state. 

In March 2022, the National Assembly refused to amend the constitution by putting the VAT on the exclusive list. The National Assembly demanded the federal government and the FIRS allow the Court to rule on the matter.

Nonetheless, hopes are high over the outcome of the Supreme Court’s decision with states and federal government running a final battle at the Supreme Court as of today. 

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Richard Okoroafor

Richard Okoroafor

Richard is a brilliant legal content writer who doubles as a finance lawyer. He brings his wealth of legal knowledge in corporate commercial transactions to bear, offering the best value that exceeds expectations.

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