The Supreme Court, Hotel Regulations and Feral Taxation.

The Supreme Court, Hotel Regulations and Feral Taxation.

M. T. Abdulrazaq*

The Supreme Court on the 19^th of July 2013 by a full panel of 7 Justices in the case of the Hon. Minister for Justice and Attorney-General of the Federation v Honourable Attorney-General of Lagos State declared that it is only a State House of Assembly that can make laws on tourism or licensing and grading of hotels, restaurants, fast food outlets and other hospitality establishments in the Country and it dismissed the case filed by the Attorney-General of the Federation.

The facts of the case are not complex and the issues are fairly simple.

By an originating summons taken by the Federal Government as Plaintiff against Lagos State, as the Defendant, the Plaintiff challenged the validity of enactment of the following laws: The Hotel Licensing Law Cap H.6, Laws of Lagos State of Nigeria 2003; The Hotel Occupancy and Restaurant Consumption Law No. 30, Vol. 42, Lagos State of Nigeria official Gazette 2009 and The Hotel Licensing (Amendment) Law No. 23, Vol. 43, Lagos State of Nigeria official Gazette, July 2010.

 The Supreme Court, after quoting Professor Ben Nwabueze SAN’s book titled Federalism in Nigeria under the Presidential Constitution (page 7) decided that the quotation sums up what a Federation is and stated that “It expresses the independence of the governments under a Federation. Powers within a country should be allowed to be shared among the two tiers of government. This will include the powers of such federating units to make laws for the benefit or good governance and well-being of the people. If so, the Lagos State laws (supra) which are in controversy herein are valid and not unconstitutional”.

The Court consequently refused to grant the declarations sought by the plaintiff  and also refused the order of perpetual injunction sought in the originating summons. “In the whole, the case of the plaintiff fails in its entirety and it is dismissed “. No order is made as to costs.

 The case has been hailed as victory for Federalism and that is exactly where the danger lies.

 It is difficult to understand the motivation for this case by the plaintiffs but to most citizens affected by the judgment the complaint at that time was specifically on the Hotel Occupancy And Restaurant Consumption Law No 30 Volume 42 of the Lagos State which imposes tax on goods and services consumed in Hotels, Facility or Event Centres within the territory of Lagos State, the law imposes the tax on any person, corporate or otherwise who pays for the use or possession of any hotel, facility or event centre or purchases consumable goods or services in any restaurant whether or not located within a hotel in Lagos State.

 The rate of tax imposed by the law is 5% of the total bill issued to the customer excluding Value Added Tax and Service Charge.

 The issue for most citizens was the tax issue and not who regulated hotels and tourism. Therefore, lumping all issues for decision under the concept of Federalism was a mistaken approach by the plaintiffs and the decision has created wider fiscal implications for citizens.

 This manner of lumping tax issues with other general issues before the Supreme Court by counsels in many cases is not new but it should stop.

 The examples of the cases starting with Nasr v Federal Board of Inland Revenue (1964) NCLR 93, then Marina Nominees Ltd v. Federal Board of Inland Revenue (1986) 2 NWLR 48 and Shell Petroleum Development Company Ltd v. Federal Board of Inland Revenue (1996) NWLR 8 (Pt 446) 256 are instructive .

 The Nasr case which involved a tax avoidance scheme of a Deed of Gift of Property was decided on the basis of onus of proof. Marina Nominees which was also a tax planning scheme was decided on the basis of corporate personality and the Shell case which veered into the general area of equity in a contractual relationship.

 What this “tourism case” introduces is what may be called “feral taxation”. A kind of viral and  wild  taxation with no end. Feral like its human counterpart meaning a human being who has lived isolated from human contact possibly amongst wild animals like the “Russian Bird Boy”, the “Nigerian Chimp Boy”, the “Indian Wolf Boy” and the famous “Ugandan Monkey Boy”.   

 What is feral about this case is that it legitimizes the tax inherent in the regulation of hotels as constitutional and produces the wild and viral effect that to enact tax statutes to no end is simply to seek to regulate any industry with inherent taxing powers embedded in the regulations. This manner of approach to the drafting of tax legislations is inherently wrong and should be discouraged.

 It is commendable and amusing that Lagos State allowed the plaintiff to play the game of federalism and constitutionalism rather than the core issue of taxation and fiscal federalism. It was a brilliant chess game strategy.

 However, more questions on the validity of the Taxes and Levies (Approved List for Collection) Act 21 of 1988 and the effect of the cases of UAC Plc v FBIR & Ors (Suit No FHC/L/CS 350 LOS), LSBIR v. NBC (Suit No ID/45/2002) and Attorney-General of Lagos v. Eko Hotels Limited [2008] All FWLR (Pt 398) 235 where the Court held that sales tax and VAT are the same and that the imposition of both taxes amounted to double taxation must now arise.

 The proper question that should have been put to the Supreme Court should have been limited to whether Hotel Consumption Tax and Value Added Tax are the same and whether the imposition of both taxes amounted to double taxation? The relief that should have been asked for, where the answer is in the positive, should have been that the Hotel Occupancy and Restaurant Law be declared null and void on the grounds that the power to impose taxation of this nature is within the exclusive legislative list and outside the legislative competence of Lagos State to regulate hotels and tourism.

 In the mean time and the fact that the same issues cannot be litigated twice since there must be an end to litigation Lagos State must now smile to the Bank. Eko o ni baje o !

  

* M. T. Abdulrazaq is Professor of Taxation, Faculty of Law, Lagos State University  and the Federal Inland Revenue Service Endowed Chair in Tax Law.