Court rejects Delta’s 5% consumption tax on VAT transactions

The Federal High Court in Abuja has nullified provisions of the Delta State Hotel Occupancy, Restaurants and Departmental Stores Consumption Tax Law, 2017, which imposed a five per cent consumption tax on transactions already covered by the Value Added Tax regime.

Justice Peter Lifu, in a judgement delivered on October 9, 2026, set aside Sections 3 and 4 of the state law, as well as Section 7(b), Item 13 of the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order No. 77 of 2015.

The judge also issued a perpetual injunction restraining the Delta State Attorney-General and Commissioner for Justice, the Delta State Board of Internal Revenue, and their agents from implementing or enforcing the affected provisions.

The suit was filed by the Nigeria Employers’ Consultative Association and Retail Supermarkets Nigeria Limited, operators of Shoprite stores, against the Attorney-General of the Federation, the Delta State Attorney-General and Commissioner for Justice, and the Delta State Board of Internal Revenue.

The plaintiffs challenged the validity of the disputed provisions, arguing that the additional consumption tax created overlapping tax obligations on goods and services already subject to VAT.

They contended that Delta State lacked the legislative competence to impose a separate consumption tax to the extent that it overlapped with the federal VAT regime, adding that the levy increased the tax burden on businesses and consumers.

The plaintiffs specifically sought declarations that Sections 3 and 4 of the Delta State law, which provide for the imposition and collection of the consumption tax, were inconsistent with the federal VAT framework.

They also challenged Section 7(b), Item 13 of the Schedule to the 2015 amendment order, arguing that it could not validly authorise a separate consumption tax on transactions already covered by VAT.

In resolving the dispute, Justice Lifu considered the Supreme Court’s decision in Attorney-General of Lagos State v. Eko Hotels Limited (2018) 7 NWLR (Pt. 1619) 518, which addressed the relationship between federal VAT and state consumption taxes.

The defendants had argued that the two taxes were different in their application, maintaining that VAT was collected at multiple stages of a transaction, while the state consumption tax applied at a single stage.

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They also argued that Section 4 of the Delta State law excluded VAT from the computation of the consumption tax, thereby preventing double taxation.

However, the judge rejected the argument that differences in the methods of assessment and collection were sufficient to justify the additional levy on transactions already covered by the VAT framework.

The court also considered Section 4(5) of the 1999 Constitution, which provides that where a state law is inconsistent with a valid law enacted by the National Assembly, the federal law prevails to the extent of the inconsistency.

Before determining the substantive issues, Justice Lifu had dismissed preliminary objections by the Attorney-General of the Federation and the Delta State defendants challenging the court’s jurisdiction.

The judge held that the plaintiffs’ challenge to the validity of the federal amendment order brought the matter within the Federal High Court’s constitutional jurisdiction under Section 251 of the Constitution.

The plaintiffs had argued that the disputed levy imposed an additional five per cent charge on specified goods and services supplied by restaurants, supermarkets and departmental stores, potentially exposing businesses to overlapping tax obligations.

NECA, which represents more than 480 corporate members, and Shoprite maintained that the levy adversely affected businesses operating in Delta State by imposing an additional charge on transactions already subject to VAT.

The plaintiffs were represented by Dr Joseph Nwobike, SAN, of Osborne Law Practice, who led their legal team, with G.D. Nwani also appearing for them.

J.O. Obaje represented the Attorney-General of the Federation, while Isaiah Bozimo, SAN, appeared for the Delta State defendants.

The court ultimately granted relief against the challenged provisions and restrained the relevant state authorities from enforcing them.