The Widening Lagos Tax Net

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Ipaye

Those who use the facilities and services in hotels, restaurants, eateries, event centres or any entertainment or relaxation centres in Lagos state are now to pay consumption tax different from the federal government’s imposed value added tax

By Anayo Ezugwu  |  Aug. 18, 2014 @ 01:00 GMT

THE Lagos State government has widened its tax net in order to raise more funds for its programmes. Apart from tightening its noose on hotels, restaurants and event centres, the government has decided to impose another law on the residents of the state. Accordingly, those who patronise them will soon be required to pay consumption charges on facilities and purchases. The state government has mandated hotels, eateries and owners of event centres  to collect consumption charges of five  percent from every customer. This has, invariably, forced an increase in the prices of products and services in hotels, restaurants, eateries and event centres. For instance, a bottle of Coke which used to be sold for N150  now costs N160 or even N180 depending on their economic location.

Perhaps, this new consumption is influenced by the state government’s recent revelation that Lagosians spend at least N4 billion daily to purchase food items. Ben Akabueze, commissioner for budget and economic planning, made this disclosure at the opening ceremony of the 7th Lagos Economic Summit, Ehingbeti 2014. According to the commissioner, the development is one of the reasons behind the massive investment in agriculture by the administration of Governor Babatunde Fashola. “Everyday N4 billion is being spent on food by Lagosians. Only about 10 percent of the total food is produced within the state. Given our limited land availability, we have thought it wise to collaborate with other states. Agriculture has, since 2008, enjoyed a higher percentage of our budget,” he said.

Recently, fast food operators in Lagos State, under the umbrella of the Association of Fast Food Confectioners of Nigeria, AFFCON, agreed to pay consumption tax to the state government, despite the pending legal tussle involving the government and the association, hotels and restaurants operators. The operators had challenged the introduction of the Lagos consumption tax which, they said, is the same as the VAT being paid to the federal government but bowed to the state government after a meeting with the management of the Lagos State Internal Revenue Service, LISR, presided over by Babatunde Fowler, former chairman of LISR.

Fowler expressed satisfaction with the development, assuring that the state would not relent its efforts in ensuring that the taxes were well utilized to provide an enabling environment for the residents of Lagos, while reiterating that the tax was not meant to be paid by the hotel operators but by those who had come to consume at their event centres, hotels and restaurants.

Speaking after the meeting, Bose Ayeni, AFFCON president, said the operators would collaborate with the government in the collection of the consumption tax, pending the determination of the case in court, adding that her members would start remitting the tax into the coffers of the state government. By implication, prices of products and services may go up at various fast food joints across the state. This is because extra taxes would be added to the prices of food items sold and services rendered by members of the association in the state.

Ayeni said the decision to cooperate with the government was to demonstrate that the association was made up of law-abiding citizens, adding that the operators would serve as collection agents to the government. “What we have come here to do is to seek a compromise, a middle of the way approach to address the impasse between our association and the Lagos State Government. As an association, we feel that a consumption tax is the same as the VAT that we are already paying to the federal government. We felt that pending the determination of the case, we can start to act as the agents that they want us to be, to collect it on their behalf. But, if the case is determined in our favour, then it means we will no longer collect. It doesn’t mean that we are trying to settle out of court, but we don’t want the government to think that we are not being cooperative and we felt it is good for us to show that we are law abiding citizens as well. We agreed to start the collection of the tax as agents of state on April 15, 2014,” she said.

It would be recalled that the Supreme Court panel on July 19, 2013, declared that it was only a state House of Assembly that could make a law and regulate on tourism, licensing and grading of hotels, restaurant, fast food outlets and other hospitality establishments in the country. The court also dismissed the case filed by the Attorney General of the Federation, against Lagos State challenging the validity of enactments 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.

Ade Ipaye, commissioner of Justice in Lagos State, while explaining the difference between consumption tax and VAT, pointed out that the Supreme Court held that it was only a state House of Assembly that could make laws on tourism or licensing and grading of hotels, restaurants, fast food outlets and other hospitality establishments in the country. “The justices also dismissed the case filed by the Attorney General of the Federation. I am, indeed,very happy about the judgment. It is an important landmark in what I would call the return to federalism and constitutionalism. The Supreme Court deserves all the applause for putting its feet down as it were, and insisting that a centralist, military era enactment, that is the Nigerian Tourism Development Act, should now give way to the constitutional power of federating states as enshrined in the 1999 Constitution.

“It is also a very important case because it underscores the residual power of the state Houses of Assembly to make laws on any matter which had not been expressly reserved for the National Assembly on the Exclusive and Concurrent Legislative Lists. Two important laws of Lagos State on hotel licensing and consumption tax were validated after many years of controversy and several court cases. Although the two suits decided by the Supreme Court involved only the Federal Attorney General and the Attorney General of Lagos State, the decision is for the benefit of all states in the Federation, being essentially an interpretation of the Constitution by our apex court,” he said.

The Hotel Occupancy and Restaurant Consumption Law is a law enacted by the Lagos State House of Assembly which imposes tax on goods and services consumed in Hotels, Facility or Event Centers within the territory of Lagos State. It imposes 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 five percent of the total bill issued to the customer excluding Value Added Tax and service charge.

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