The question of which level of government has the constitutional authority to impose Value Added Tax (VAT) is one of the most significant in Nigerian tax law. VAT is a consumption tax paid by consumers, collected by suppliers, and distributed as public revenue. However, the core issue is whether the Federal Government or the states hold the legislative power to impose it. This matters deeply because Nigeria operates as a federation under the 1999 Constitution, which assigns specific powers to each tier of government.
The Constitutional Framework
Under Section 4 of the 1999 Constitution, the National Assembly has exclusive power over matters listed in the Exclusive Legislative List, while state Houses of Assembly have residual powers over matters not listed. VAT does not appear explicitly in either the Exclusive or Concurrent Legislative List. The Constitution specifically mentions taxation of incomes, profits, and capital gains (Item 59), stamp duties, customs, and excise, but not a general consumption tax like VAT. This omission is not accidental; it suggests that the framers did not intend to grant the Federal Government such power by implication.
The principle of expressio unius est exclusio alterius supports this interpretation: where specific tax heads are named, the omission of VAT indicates it was not intended to be a federal power. Any attempt to expand federal authority through judicial interpretation would be inappropriate; a constitutional amendment is the proper remedy.
VAT as a Consumption Tax
VAT is fundamentally different from income tax. It is charged on taxable supplies, not on profits or gains. A business may be liable for VAT even if it makes no profit, and consumers bear the tax through consumption, not earnings. The Nigeria Tax Act, 2025, treats VAT as a distinct form of taxation, separate from income tax and stamp duties. This classification aligns with international tax practice, such as the OECD International VAT/GST Guidelines, which define VAT as a tax on final consumption.
The economic incidence of VAT falls on the consumer, while the legal incidence rests on the supplier as a collection agent. Neither aspect connects VAT to income, profit, or capital gain. Therefore, VAT on purely intra-state consumption falls more naturally within the residual powers of the states under Section 4(7)(a) of the Constitution.
Federal Competence and Its Limits
The Federal Government may have a stronger case for VAT on imports, exports, digital cross-border supplies, and inter-state transactions. Item 62(a) of the Exclusive Legislative List grants the National Assembly power over trade and commerce between states and with other countries. However, this provision is regulatory in nature, not a general taxing power. Where the Constitution intends to confer taxing authority, it uses specific tax language. Stretching Item 62(a) to cover a blanket VAT on all supplies would be an overreach.
The VAT dispute has been in the judicial system since 2021 without a final ruling on its merits. Meanwhile, federal collection continues, shaping fiscal reality without constitutional clarity. This situation is unhealthy for a constitutional democracy. VAT is a major non-oil revenue source, and its reallocation would affect federal and state budgets, debt servicing, development planning, and intergovernmental fiscal relations.
The Urgent Need for Supreme Court Clarification
The Supreme Court must provide a definitive interpretation of the Constitution regarding VAT. The longer the silence, the more administrative practice risks becoming constitutional law. The stakes extend beyond legal circles to the entire fiscal structure of the federation. A clear ruling is essential to uphold the constitutional division of powers and ensure fiscal federalism functions properly.
In conclusion, the Federal Government lacks general legislative power to impose blanket VAT under the 1999 Constitution. VAT on intra-state consumption belongs to the states. Federal competence is limited to specific areas like international and inter-state trade. The Supreme Court should resolve this issue promptly to prevent further erosion of constitutional principles.
