The debate over Value Added Tax (VAT) in Nigeria is deeply rooted in the country's sales tax history. Before VAT became the dominant consumption tax instrument, sales tax occupied much of the field now associated with VAT. The constitutional question that arose during the sales tax era remains relevant: when does taxation of sales or consumption become a federal matter, and when does it fall within the competence of federating states?
The Aberuagba Case and Its Enduring Relevance
The Supreme Court's decision in Attorney-General of Ogun State v. Aberuagba remains central to this discussion. The case concerned sales tax and the limits of federal legislative power over trade and commerce. The decision recognized that federal competence over inter-state and international trade does not extinguish the authority of federating states over intra-state commercial activity. Its enduring relevance lies in that distinction: trade crossing state or national boundaries raises federal concerns, while intra-state sales and consumption within a state stand on a different constitutional footing.
The Transition from Sales Tax to VAT
VAT replaced sales tax during the military era through the Value Added Tax Decree No. 102 of 1993. This history is important because military decrees operate under a centralized command structure and did not answer the federalism question under the 1999 Constitution. When constitutional democracy returned, every inherited federal tax statute had to stand or fall by the Constitution. Administrative continuity cannot substitute for constitutional competence. The transition from sales tax to VAT therefore strengthened the argument for federating states: if sales and consumption taxation had a recognized state dimension before VAT, the replacement of sales tax with VAT cannot automatically transfer the entire field to the federal government under a democratic Constitution.
It also bears noting that a number of federating states, including Lagos State, operated their own sales tax regimes after the return to civil rule in 1999, prior to the eventual centralization of consumption taxation under VAT. This historical practice supports the position that Nigerian constitutional law has long recognized a state dimension to consumption taxation. The current dispute is therefore not a novel attempt by federating states to acquire a new tax head; it is, in substance, an effort to restore a competence that the federating states exercised in living memory and which the Constitution does not appear to have transferred.
Section 163 and the Revenue Distribution Argument
Section 163 of the Constitution deserves careful attention. It provides for the distribution among states, on the basis of derivation, of net proceeds of certain taxes or duties imposed under an Act of the National Assembly in respect of matters specified in Item D of Part II of the Second Schedule. The relevant matters include capital gains, incomes or profits of persons other than companies, and documents or transactions by way of stamp duties. This provision is useful for two reasons. First, it shows that the Constitution knows how to create a special federal-state tax arrangement. Where the Constitution intends federal imposition with state-linked distribution, it says so. Section 163 provides a constitutional formula; it does not leave the matter to implication. Second, the taxes contemplated under Section 163 are specific. The section does not mention VAT or general consumption tax. That omission should be treated seriously. It would be constitutionally unsafe to read Section 163 as a general licence for the National Assembly to impose any tax and distribute its proceeds later.
Section 163 also weakens the argument that revenue sharing cures a competence defect. Distribution and legislative competence are different questions. A tax may be shared among governments after collection, but the first question remains whether the legislature that imposed the tax had authority to do so. The current administrative practice of distributing VAT revenue through the Federation Account or by formula adopted by the Nigeria Revenue Service does not derive from any constitutional text equivalent to Section 163. It rests on subsidiary legislation and administrative convention. That practice may be efficient, but it is not a substitute for the express constitutional authorization that Section 163 represents for the taxes it covers. A federation should not rely on administrative formulae to perform work that the Constitution itself ought to do.
The Rivers State VAT Litigation and Its Constitutional Significance
The Federal High Court's decision in Attorney-General of Rivers State v. Federal Inland Revenue Service & Attorney-General of the Federation brought the VAT issue into sharp national focus. Rivers State challenged the constitutional authority of the federal government, through the Federal Inland Revenue Service, to impose and collect VAT within the state. The Federal High Court held that VAT was outside the taxing powers assigned to the federal government and that Rivers State was competent to legislate in respect of VAT within its territory. The decision triggered immediate national consequences. Lagos State and Rivers State moved to assert their own VAT laws. The Federal Inland Revenue Service appealed, and the Court of Appeal granted a stay of execution, preserving the practical federal collection position pending further determination. The stay did not resolve the constitutional merits; it preserved the existing administrative position while the dispute continued.
The case is now a federation-defining dispute. It affects state budgets, federal revenue planning, taxpayer compliance, business pricing, investor certainty, intergovernmental relations, and public confidence in constitutional governance. The most concerning feature is time. The dispute began in 2021, and as of 2026, the country still awaits a final merits pronouncement from the apex court. Five years is a long time for a constitutional revenue question of this magnitude. Businesses have continued to comply with the federal system. Federating states have remained constrained. Citizens have continued to bear VAT in prices. Governments have continued to budget around an unresolved constitutional controversy. Judicial delay in this context has fiscal consequences. Every additional year of uncertainty strengthens the administrative status quo. An interim stay begins to shape public finance. Where an unresolved constitutional issue affects the economy and the masses, the courts should move with the urgency consistent with the public importance of the matter.
The Supreme Court should pronounce on the VAT issue at the earliest appropriate opportunity. The country needs a clear statement on the constitutional boundary between federal trade-and-commerce powers and federating states' consumption-tax powers. That statement will either validate the existing federal VAT structure, return VAT substantially to the states, or create a principled middle ground for federal control of international and inter-state transactions while preserving federating states' competence over intra-state consumption. It is respectfully submitted that the public interest in accelerated determination of this matter is overwhelming. Hundreds of billions of naira in annual VAT collection sit under a constitutional cloud. Federating states' governments make budgetary commitments, including development projects, on the basis of revenue whose constitutional foundation has been formally challenged. Citizens pay VAT every day on essential goods and services without final assurance that the collecting authority is constitutionally proper. A constitutional democracy cannot indefinitely defer a question of this character.
The 2025 Tax Reform Laws: Modernisation Without Constitutional Finality
Nigeria's 2025 tax reform laws represent a commendable major statutory overhaul. The Nigeria Tax Act, 2025 repeals and consolidates significant tax statutes, including the Companies Income Tax Act, Personal Income Tax Act, Petroleum Profits Tax Act, Capital Gains Tax Act, Stamp Duties Act, and Value Added Tax Act. It provides a unified framework for taxation of income, transactions, and instruments. It commenced on January 1, 2026. The Nigeria Revenue Service (Establishment) Act, 2025 establishes the Nigeria Revenue Service and gives it functions including assessment, collection, recovery, enforcement, and accounting for revenue accruing to the Government of the Federation. Professional commentary has described the 2025 reforms as a major overhaul aimed at streamlining compliance, broadening the tax base, and modernising tax administration.
These reforms are consequential. They may improve administration, simplify compliance, and strengthen digital taxation, invoice sequencing, fiscalization, non-resident supplier obligations, and input VAT recovery. The competence question, however, remains untouched. The constitutional reason is direct: the National Assembly acts under the Constitution. A federal statute cannot amend the Constitution by consolidation. If VAT lies within federating states' residual competence, placing VAT inside the Nigeria Tax Act, 2025 cannot change that result. The new tax laws may be excellent legislation from an administrative standpoint and still be vulnerable if the relevant constitutional competence is absent. This distinction must guide policymakers. The tax reform project should continue. Nigeria needs a modern tax system. Yet constitutional design must support tax modernisation. The political branches should not leave a fundamental competence question to administrative practice. A constitutional amendment may be the most stable route if the national policy objective is a harmonised VAT system.
There is also a credit-rating and investor-confidence dimension to this issue that deserves attention. International capital markets, multilateral institutions, and foreign direct investors monitor the constitutional stability of revenue regimes in host jurisdictions. A national tax statute that is operationally robust but constitutionally contested carries a hidden risk premium. Resolving the VAT question, whether through judicial pronouncement or constitutional amendment, would strengthen the credibility of the Nigeria Tax Act, 2025 and the wider 2025 reform package by removing the residual doubt that surrounds the most economically significant chapter of the new framework.
Item 59: Income, Profits, and Capital Gains Cannot Carry Blanket VAT
The federal government's first possible argument rests on Item 59 of the Exclusive Legislative List. That item covers taxation of incomes, profits, and capital gains. The argument would treat VAT as part of the broader fiscal system and invite the court to adopt a purposive interpretation. Purposive interpretation has a proper place in constitutional law. The Supreme Court has used doctrines such as pith and substance in determining legislative competence. Attorney-General of Abia State v. Attorney-General of the Federation is relevant in this regard, particularly in fiscal disputes involving stamp duties. The difficulty is textual. Item 59 is specific. The words incomes, profits, and capital gains point to identifiable tax bases. VAT has a different base. It attaches to taxable supplies. Its burden is tied to consumption. A purposive interpretation cannot delete the chosen words of the Constitution. If Item 59 is expanded to cover every tax with revenue-raising effect, the Exclusive Legislative List becomes elastic beyond recognition. Such a reading would convert the federal government into a general taxing authority over any subject carrying fiscal value. That would diminish federating states' fiscal autonomy and weaken the residual-power structure of Section 4(7)(a). The sounder interpretation confines Item 59 to its text. Income tax, profit tax, and capital gains tax fall within it. VAT requires its own constitutional basis. This conclusion is consistent with the canon that taxing statutes are construed strictly. If the Federation cannot claim VAT authority by clear constitutional language, it should not acquire that authority through expansive reading of a list designed to limit rather than enlarge federal power.
Item 62(a): Trade and Commerce, Properly Understood
The federal government's stronger argument rests on Item 62(a). Trade and commerce between Nigeria and other countries and between one federating state and another are federal matters. VAT often arises in supply chains that cross state and national boundaries. Imports, exports, e-commerce platforms, digital services, multi-state supply networks, and inter-state wholesale transactions all raise practical federal concerns. That point has weight. A federation needs rules for cross-border trade. Fragmented federating states' taxation of inter-state transactions can create double taxation, compliance difficulties, and commercial uncertainty. The Constitution recognizes that danger by assigning international and inter-state trade and commerce to the Federation. The answer lies in proportion. Item 62(a) can support federal regulation of international and inter-state commerce. It may also support carefully designed fiscal incidents tied directly to those fields. Blanket federal VAT on every supply within federating states goes beyond that logic. Intra-state consumption remains constitutionally distinct from cross-border trade.
A balanced approach would distinguish three categories: international supplies and imports, where the federal claim is stronger because foreign trade and customs-adjacent administration are involved; inter-state supplies, where a possible federal role exists because federating states' boundaries are crossed; and intra-state supplies and final consumption within a federating state, where the state claim is stronger under residual legislative competence. This framework respects both sides of the Constitution. It preserves federal authority where national commercial unity is genuinely at stake. It also protects federating states' authority over consumption within a state's territory. Such a tripartite approach is not theoretical. It is broadly the pattern adopted, with local variation, in mature federations including India under Article 246A and Article 269A. The Nigerian Constitution can accommodate a similar structure through amendment, while in the interim the Supreme Court can clarify the existing constitutional limits of Item 62(a). The point is not to invent a new doctrine but to apply the existing one with the precision the text invites.
Comparative Federalism: Lessons from Australia, Canada, and India
Comparative experience helps to clarify the issue. Other federations handle consumption taxation through constitutional design, intergovernmental agreement, or cooperative tax structures. The central lesson is that a federation must make a deliberate choice. Administrative convenience alone does not create constitutional authority.
Australia
Australia operates a national Goods and Services Tax collected under Commonwealth law, with revenue distributed to states and territories through a fiscal equalisation system. The Commonwealth Grants Commission provides independent advice on the distribution of GST revenue. The Australian model works through a known national framework, intergovernmental fiscal arrangements, and an equalisation mechanism. Nigeria's problem is different: the present dispute concerns the antecedent constitutional question of whether the National Assembly has authority to impose blanket VAT in the first place. Australia's national GST regime rests on a clear constitutional foundation enacted through cooperative Commonwealth-state legislation in 1999, together with an Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. The Australian states effectively surrendered their narrower wholesale sales tax base in exchange for a guaranteed share of GST revenue. The point for Nigeria is that the Australian regime was constructed through deliberate constitutional and political agreement, not through unilateral central assertion.
Canada
Canada demonstrates a flexible model. The federal government charges Goods and Services Tax. Some provinces participate in the Harmonized Sales Tax system, where federal and provincial components are combined. Other provinces maintain separate provincial sales taxes. Quebec applies the federal GST alongside its own Quebec Sales Tax. Canada's lesson is cooperative federalism. A country can maintain a national consumption tax while allowing provincial participation, separate provincial sales taxation, or harmonisation by agreement. The Canadian model offers Nigeria a useful direction: constitutional clarity, administrative cooperation, and respect for federating states' fiscal identity. Equally important is the Canadian recognition that asymmetry is not a defect. Quebec's separate administration of its sales tax, and the coexistence of HST and non-HST provinces, demonstrate that a federation can accommodate different sub-national choices without destabilising the national tax system. Nigeria's federating states differ widely in size, economy, and administrative capacity. A model that allows for differentiated participation, rather than imposing uniformity, may be better suited to Nigerian reality.
India
India offers the most direct constitutional lesson. Before implementing GST, India amended its Constitution through the Constitution (One Hundred and First Amendment) Act, 2016. The amendment inserted Article 246A, conferring simultaneous GST legislative power on Parliament and State Legislatures, while giving Parliament exclusive power over GST where the supply takes place in the course of inter-state trade or commerce. It also inserted Article 269A on levy, collection, and apportionment of GST in the course of inter-state trade or commerce, and Article 279A establishing the GST Council. The GST Council comprises Union and State representatives and makes recommendations on GST matters. India therefore did not rely on an implied trade-and-commerce power to create a nationwide GST regime. It amended the Constitution, created a federal body for GST coordination, addressed inter-state supplies, and recognized state participation in the constitutional text. That is the clearest lesson for Nigeria. If the policy goal is a harmonised VAT system, constitutional amendment is the safest path. The Indian experience also illustrates a procedural point: the GST Council, by giving states a structured voice in the design and revision of the national consumption tax, has produced a degree of buy-in that pure central imposition cannot achieve. For Nigeria, the institutional design lesson is that legitimacy follows participation. A constitutionally entrenched intergovernmental body, with formal representation of the federating states, would do more to stabilise Nigerian VAT than any further consolidation of central administrative authority.
The Delayed Justice Problem
The VAT litigation raises an issue beyond taxation. It raises a question about judicial time in constitutional economic disputes. A stay of execution is a procedural tool that preserves a position pending appeal. In ordinary litigation, that may be harmless. In a revenue case of national importance, the effect is heavier. A stay can determine who collects substantial public revenue while the appeal remains unresolved. A stay can shape budgets, influence taxpayer behaviour, create expectations among governments, and weaken the practical value of the judgment under appeal. Since the Rivers VAT decision in 2021, the practical effect of the appellate process has been continued federal collection. That may have preserved administrative order, but it has also left the constitutional issue unresolved for years. A federation cannot thrive when a major revenue power remains uncertain for half a decade.
The Supreme Court should treat the VAT question as urgent. The issue affects the economy, the federating states, businesses, and consumers. It affects the masses because VAT is ultimately borne through prices. It affects governance because taxation and accountability are inseparable. The court's final pronouncement will help every side: the federal government, federating states' governments, taxpayers, investors, and citizens alike. A timely decision would also prevent political speculation. In the absence of final judicial guidance, both sides speak from partial authority. The federal government points to continuity and national uniformity. Federating states point to constitutional text and residual powers. Taxpayers comply while uncertain. The Constitution deserves a final interpreter. The doctrine that justice delayed is justice denied is not merely a rhetorical flourish. In fiscal constitutional litigation, delay alters the substance of the question. Each year of unresolved appeal entrenches the contested practice, narrows the field of practical remedies, and increases the political cost of any subsequent ruling that disturbs it. The longer the Supreme Court withholds its pronouncement, the harder it becomes to give effect to whatever pronouncement is ultimately made. The constitutional value at stake is therefore time-sensitive in a way that ordinary civil disputes are not.
Policy Options for Nigeria
Nigeria now has three realistic paths.
Judicial Recognition of State VAT Competence
The Supreme Court may affirm that VAT on intra-state consumption lies within federating states' residual powers. Under this model, federating states' governments would legislate and collect VAT within their territories. The federal government would retain authority over international and inter-state trade where the Constitution supports it. This model would strengthen federating states' fiscal autonomy. It would also require careful transitional rules to avoid double taxation and compliance confusion.
A Dual VAT Model
Nigeria may adopt a dual model in which the federal government imposes VAT on imports, exports, and inter-state supplies, while federating states' governments impose VAT on intra-state supplies. This approach would align with the federal distinction between cross-border commerce and intra-state consumption. The challenge would be administration. Place-of-supply rules, input-credit allocation, digital platform obligations, and dispute resolution mechanisms would need careful design.
Constitutional Amendment and Harmonised VAT
The most stable model is constitutional amendment. The Constitution could expressly create a VAT or consumption-tax head of power. It could define federal, state, and concurrent roles. It could establish a VAT Council or Joint Tax Council with representation from the Federation and the federating states. It could provide a derivation-sensitive distribution formula and a transition schedule. India's GST amendment provides a useful comparative model, though Nigeria should adapt rather than copy it. Canada's harmonisation arrangements and Australia's distribution debates also provide useful warnings. The key point is that Nigeria needs constitutional design, not constitutional improvisation.
Choosing Among the Options
These three paths are not mutually exclusive. The Supreme Court may rule in a manner that effectively requires constitutional amendment as the only durable national solution. The political branches may begin amendment proceedings in parallel with judicial review, so that whichever institution acts first produces a workable outcome. What is not sustainable is the continuation of the present arrangement: federal collection under contested authority, with no roadmap toward resolution. Each of the three options above is preferable to indefinite drift.
Recommended Constitutional Reform Principles
Any reform should rest on five principles. First, clarity of competence: the Constitution should identify who may impose VAT, on what transactions, and under what circumstances. Second, respect for federating states' fiscal autonomy: federating states' governments should have meaningful revenue authority over consumption within their territories. Third, national market protection: inter-state trade should be protected from multiple burdens and inconsistent rules. Fourth, derivation and fairness: VAT revenue should reflect, to a reasonable degree, where consumption occurs. Equalisation may be necessary, but derivation should not disappear. Fifth, administrative simplicity: businesses should not face chaos. The system should use unified registration, digital invoicing, common definitions, and interoperable federal-state tax platforms.
To these, two further principles may be added in the Nigerian context. Sixth, transitional protection: any reform that reallocates VAT authority must be accompanied by a defined transition period. Federating states with weaker administrative capacity must not be left without support, and federating states with stronger consumption bases must not be disadvantaged through abrupt change. A staged implementation, possibly over three to five years, will give all governments and the business community time to adjust. Seventh, taxpayer protection: whatever model is adopted, the taxpayer must not be the casualty. Registration, filing, audit, and dispute resolution should be unified at the point of compliance, so that businesses interact with one harmonised system, even if revenue is allocated between two tiers of government. The principle of one taxpayer, one window should guide implementation.
A constitutional amendment could therefore provide: the National Assembly may make laws for Value Added Tax or Goods and Services Tax on imports, exports, and supplies in the course of inter-state or international trade and commerce. A House of Assembly of a State may make laws for consumption taxes on supplies made and consumed within the State. The Federation and the States may, by law and intergovernmental agreement, establish a harmonised VAT administration framework, provided that revenue allocation reflects derivation, equity, and administrative cost. This is only a possible formulation. The deeper point is that Nigeria needs express text.
Conclusion
VAT has become one of Nigeria's most important constitutional tax questions. The issue concerns the structure of the federation, the authority of federating states' governments, the limits of federal legislative power, and the accountability of public revenue. The state-side argument is strong. VAT is absent from the Exclusive and Concurrent Legislative Lists. Item 59 covers taxation of incomes, profits, and capital gains. VAT is clearly a consumption tax charged on supplies. Item 62(a) gives the Federation power over international and inter-state trade and commerce, but its text does not confer blanket consumption-tax authority over intra-state supply in Nigeria. Section 163 reinforces the importance of constitutional specificity in tax allocation and revenue distribution. The Nigeria Tax Act, 2025 modernises tax law and consolidates the former VAT Act into a wider federal tax framework. That reform may improve administration, but constitutional competence still controls the Nigeria Tax Act, 2025, as the Constitution remains supreme.
I believe that the most principled solution in the circumstance is either judicial confirmation of state competence over VAT or a constitutional amendment clearly defining the respective VAT powers of the federal government and the federating states. In the absence of such amendment, the general federal imposition and collection of VAT appears to be clearly inconsistent with the provisions of the Constitution and remains constitutionally doubtful. With humility and utmost respect for the independent judicial institution in Nigeria, the Supreme Court should now speak and interpret the true position of the Constitution. The lingering controversy over VAT in Nigeria should, as a matter of urgency, be put to rest once and for all. It is sad and regrettable to note that since 2021, the country has lived with uncertainty on an important tax question that affects the Federation, the federating states, businesses, and consumers, as a result of the stay placed by the Court of Appeal and five years thereafter, no decision from the said court. The delay has practical consequences. Public revenue has been collected under a contested structure. Federating states' fiscal autonomy has remained in suspense, and taxpayers have carried the burden of uncertainty in a tax matter that ordinarily should be dispensed with speedily.
Nigeria deserves a final constitutional answer. If the answer favours the federating states, the transition should be orderly. If the answer favours the Federation, the reasoning should be clear enough to preserve the integrity of constitutional federalism. If the answer requires a middle ground, the court should define the boundary with precision. Beyond the immediate legal question, the VAT controversy is a test of the maturity of Nigerian fiscal federalism. A federation that cannot resolve, in a reasonable time, who may tax the consumption of bread and salt within its own borders certainly has work to do on its constitutional architecture. The path forward calls for institutional courage from the judiciary, intellectual honesty, political will, and patience from the public. If these three are brought together, Nigeria can emerge from this dispute with a stronger constitution, a fairer revenue system, and a federation more confident in its own design. The country awaits, with respect and unmistakable urgency, the voice of the Supreme Court and the leadership of the political branches. The Constitution is not silent on the principles. What it now needs is clear and final interpretation.
