Taxation And Trade/Commerce: Friends Or Frenemies?

By Abubakar D. Sani, Esq.

This question is prompted by the news of the huge tax bill (N248
million, reduced from an initial sum of N1.2 billion) recently
slammed by the Tax Appeal Tribunal on a former President of the
Nigerian Bar Association, Chief J.B. Daudu, SAN. Reportedly made up
of arrears of Withholding tax and Value Added Tax, for the years
2010 – 2017, the said assessment is virtually unprecedented, at
least for a professional – let alone a legal practitioner of Chief
Daudu’s stature. Accordingly, few would be surprised if he fights
it all the way to the apex court.

I believe the news brings to the fore the taxing powers of the
National Assembly under the Constitution. This appears to be
straight forward enough, at least if the provisions of Item
59 of the Exclusive Legislative List are anything to go
by. Read along with Section  4(3) of the
Constitution, they simply state that the National Assembly
shall have the exclusive power to legislate on “taxation of
profits, incomes and capital gains, save as otherwise provided for
by the Constitution”. Pursuant to this provision, the Assembly
enacted the Federal Inland Revenue Service (Establishment,
etc.) Act, 2007, which establishes the Federal Board of
Inland Revenue and empowers it to enforce the provisions of the
seven (7) different tax laws, inter alia, listed in the
Schedule thereto. These include the Companies Income Tax
Act, the Petroleum Profits Tax Act, the Personal Income Tax Act,
the Capital Gains Tax Act, the Value Added Tax Act, the Stamp Duty
Act, the Taxes and Levies (Approved List for Collection)
Act.

So much for the statute law. If this was the end of the matter,
case closed. Alas, it is not, as we have to contend with case law
or judicial precedent. In this regard, it appears that very few
people are aware that, on the 11^th of December 2020, the
Federal High Court, sitting in Port-Harcourt, Rivers State (in
EMMANUEL UKALA vs. FEDERAL INLAND REVENUE SERVICE,
(2021) 56 TLRN 1, held that the taxing powers of the National were
restricted to only those expressly mentioned in the Constitution,
i.e., incomes, profits, capital gains and stamp duties on companies
– and excludes value added tax, which is not mentioned therein. It
is evident that, in arriving at this conclusion, the court placed
an unduly restrictive construction on the aforesaid constitutional
provisions. This is odd, as it is trite law that the Constitution
should be given a broad and liberal interpretation: NAFIU
RABIU vs. THE STATE (1980) 8-11 S.C. (Reprint);
BRONIK MOTORS vs. WEMA BANK (1983) 6 S.C. 158.

Having said this, however, it is entirely plausible that the
court was swayed by the established judicial policy to construe tax
statutes strictly: 7-UP BOTTLING CO. vs. LAGOS STATE
INTERNAL REVENUE BOARD (2013) 2 NRLR 10-5. This is an
extension of the principle that expropriatory statutes should be
construed contra proferentum. This means that if is there
is any ambiguity therein, it should be resolved in favour of the
subject or tax-payer, and against the state: AFOLABI vs.
GOVERNOR OF OYO STATE (1985) 2 NSCC pt. II pg. 1151;
EZE vs. GOVERNOR OF ABIA STATE (2010) 15 NWLR pt.
1216 pg. 3254; OKOTIE-EBOH vs. MANAGER (2004) 16
NWLR pt. 905 pg. 242. This one is likely to run and run.

Beyond the foregoing, though, I believe that a more fundamental
issue is the capacity, vel non, of the National Assembly
to tax an activity in respect of which it lacks the power to
regulate, substantively. By this, I refer to the on-going practice
of the Federal Inland Revenue Service of enforcing the provisions
of the aforesaid tax laws in respect of incomes, profits, capital
gains and stamp duty which are derived from other incidents of
trade and commerce which are not provided for under the
Constitution. My position is premised on the fact that the
Constitution – in Item 62 of its Exclusive Legislative
List – has specified the types of trade and commerce in
respect of which the Assembly is competent to legislate. For the
avoidance of doubt, they are as follows:

“Trade and commerce, and, in particular:

• trade and commerce between Nigeria and other countries,
  including import of commodities into and export of commodities from
  Nigeria, and trade and commerce between States;
• establishment of a purchasing authority with power to
  acquire for export or sale in world markets such agricultural
  produce as may be designated by the National Assembly;
• inspection of produce to be exported from Nigeria and the
  enforcement of grades and standards of quality in respect of
  produce so inspected;
• establishment of a body to prescribe and enforce standards
  of goods and commodities offered for sale;
• control of the prices of goods and commodities designated
  by the National Assembly as essential goods or commodities;
  and
• registration of business names”

In ATTORNEY-GENERAL OF OGUN STATE vs. ABERUAGBA
(1985) 1 NWLR pt. 3 pg. 395, the Supreme Court held that
identical provisions in Item 61 of the 1979
Constitution were words of limitation, not of emphasis. In
other words, the National Assembly was (and is) incompetent to
legislate on any incident of trade and commerce which is not
captured within those provisions. This includes, in my view, any
law by which the Assembly purports to impose any tax on such
activity. I believe that this view is valid, notwithstanding the
temptation to construe the provisions of Item 59
as special, whilst those of Item 62 are general.
In other words, any such inclination should be rejected as
illegitimate, for the simple reason that it is illogical to purport
to tax the outcome or product(s) of an activity, which, in itself,
the National Assembly is incompetent to regulate. I believe it is
either all or nothing, and you can’t have one without the
other.

This argument is borne out by the definitions of
‘trade’ and ‘commerce’, as follows,
respectively:

‘Trade’ is defined (by Adam Hayes, in www.investopedia.com^[1]), as:

“A basic economic concept, involving the buying and selling
of goods and services with compensation paid by a buyer to a
seller, or the exchange of goods and services between parties.
Trade broadly refers to transactions ranging in complexity from
the collectors to multinational policies to set protocols for
imports and exports between countries. Almost every kind product
can be found on the international market including currencies.
Services are also traded: banking, tourism, consulting and
transportation. A product that is sold to the global market is an
export and a product that is bought from the global market is an
export.”

As for ‘Commerce’, it is defined (by James Chen, also
in www.investopedia.com^[2]), as
“Generally (referring) to the exchange of goods,
services or something of value between businesses or entities. It
refers to the macro-economic purchases and sales of goods and
services by organizations. Commerce is a subset of business that
focuses on the distribution aspect of business as opposed to the
production side. The buying or selling of a single item is known as
a transaction, whereas all the transactions of that item in an
economy are known as commerce. E-commerce is a variant of commerce
in which goods are sold electronically on the internet. Most
commerce is conducted internationally and represents the buying and
selling of goods between nations”

I believe that the foregoing definitions put it beyond doubt
that the case of ABERUAGBA applies to foreclose
any possibility that the National Assembly is competent to regulate
(or tax) any trade or commerce which is not specified in
Item 62 of the Exclusive Legislative List of the
Constitution. This is all the more so, I believe, because
the Constitution has spelt out the plenitude of the powers which it
confers on the National Assembly. In this regard, in
ATTORNEY-GENERAL OF BENDEL STATE vs. ATTORNEY-GENERAL OF
THE FEDERATION (1981) 10 S.C. 131, the apex court held,
inter alia, that “under a Constitution conferring
specific powers, a particular power must be granted, or it cannot
be exercised”. This means that, to the extent that the
Constitution does not empower the National Assembly to regulate
non-International/non-Inter-State trade and commerce, the Assembly
cannot impose any tax on the incidents/constituents of such
transactions.

Conclusion

The on-going public hearings into the reform of the 1999
Constitution are a rare opportunity to correct some of the glaring
anomalies in that important document. Nowhere is this intervention
more urgently needed than in its, frankly, sketchy provisions
dealing with the taxing powers of the National Assembly. Given the
established judicial policy (right up to the apex court) of
construing tax provisions strictly, it is an obvious policy
imperative to put the constitutional powers of the Assembly beyond
conjecture by stating them explicitly ex abundantia
cautella – out of an excess of caution. Otherwise, no one
should blame any court which is seised with a tax recovery claim if
it seemingly lets a defendant ‘off the hook’ or otherwise
gives him or her a so-called ‘soft-landing’ based on the
present anomalous state of our tax laws – including, worryingly, in
the Constitution.

Abubakar D. Sani, Esq.

25^th June, 2021

By Abubakar D. Sani, Esq.

This question is prompted by the news of the huge tax bill (N248
million, reduced from an initial sum of N1.2 billion) recently
slammed by the Tax Appeal Tribunal on a former President of the
Nigerian Bar Association, Chief J.B. Daudu, SAN. Reportedly made up
of arrears of Withholding tax and Value Added Tax, for the years
2010 – 2017, the said assessment is virtually unprecedented, at
least for a professional – let alone a legal practitioner of Chief
Daudu’s stature. Accordingly, few would be surprised if he fights
it all the way to the apex court.

I believe the news brings to the fore the taxing powers of the
National Assembly under the Constitution. This appears to be
straight forward enough, at least if the provisions of Item
59 of the Exclusive Legislative List are anything to go
by. Read along with Section  4(3) of the
Constitution, they simply state that the National Assembly
shall have the exclusive power to legislate on “taxation of
profits, incomes and capital gains, save as otherwise provided for
by the Constitution”. Pursuant to this provision, the Assembly
enacted the Federal Inland Revenue Service (Establishment,
etc.) Act, 2007, which establishes the Federal Board of
Inland Revenue and empowers it to enforce the provisions of the
seven (7) different tax laws, inter alia, listed in the
Schedule thereto. These include the Companies Income Tax
Act, the Petroleum Profits Tax Act, the Personal Income Tax Act,
the Capital Gains Tax Act, the Value Added Tax Act, the Stamp Duty
Act, the Taxes and Levies (Approved List for Collection)
Act.

So much for the statute law. If this was the end of the matter,
case closed. Alas, it is not, as we have to contend with case law
or judicial precedent. In this regard, it appears that very few
people are aware that, on the 11^th of December 2020, the
Federal High Court, sitting in Port-Harcourt, Rivers State (in
EMMANUEL UKALA vs. FEDERAL INLAND REVENUE SERVICE,
(2021) 56 TLRN 1, held that the taxing powers of the National were
restricted to only those expressly mentioned in the Constitution,
i.e., incomes, profits, capital gains and stamp duties on companies
– and excludes value added tax, which is not mentioned therein. It
is evident that, in arriving at this conclusion, the court placed
an unduly restrictive construction on the aforesaid constitutional
provisions. This is odd, as it is trite law that the Constitution
should be given a broad and liberal interpretation: NAFIU
RABIU vs. THE STATE (1980) 8-11 S.C. (Reprint);
BRONIK MOTORS vs. WEMA BANK (1983) 6 S.C. 158.

Having said this, however, it is entirely plausible that the
court was swayed by the established judicial policy to construe tax
statutes strictly: 7-UP BOTTLING CO. vs. LAGOS STATE
INTERNAL REVENUE BOARD (2013) 2 NRLR 10-5. This is an
extension of the principle that expropriatory statutes should be
construed contra proferentum. This means that if is there
is any ambiguity therein, it should be resolved in favour of the
subject or tax-payer, and against the state: AFOLABI vs.
GOVERNOR OF OYO STATE (1985) 2 NSCC pt. II pg. 1151;
EZE vs. GOVERNOR OF ABIA STATE (2010) 15 NWLR pt.
1216 pg. 3254; OKOTIE-EBOH vs. MANAGER (2004) 16
NWLR pt. 905 pg. 242. This one is likely to run and run.

Beyond the foregoing, though, I believe that a more fundamental
issue is the capacity, vel non, of the National Assembly
to tax an activity in respect of which it lacks the power to
regulate, substantively. By this, I refer to the on-going practice
of the Federal Inland Revenue Service of enforcing the provisions
of the aforesaid tax laws in respect of incomes, profits, capital
gains and stamp duty which are derived from other incidents of
trade and commerce which are not provided for under the
Constitution. My position is premised on the fact that the
Constitution – in Item 62 of its Exclusive Legislative
List – has specified the types of trade and commerce in
respect of which the Assembly is competent to legislate. For the
avoidance of doubt, they are as follows:

“Trade and commerce, and, in particular:

• trade and commerce between Nigeria and other countries,
  including import of commodities into and export of commodities from
  Nigeria, and trade and commerce between States;
• establishment of a purchasing authority with power to
  acquire for export or sale in world markets such agricultural
  produce as may be designated by the National Assembly;
• inspection of produce to be exported from Nigeria and the
  enforcement of grades and standards of quality in respect of
  produce so inspected;
• establishment of a body to prescribe and enforce standards
  of goods and commodities offered for sale;
• control of the prices of goods and commodities designated
  by the National Assembly as essential goods or commodities;
  and
• registration of business names”

In ATTORNEY-GENERAL OF OGUN STATE vs. ABERUAGBA
(1985) 1 NWLR pt. 3 pg. 395, the Supreme Court held that
identical provisions in Item 61 of the 1979
Constitution were words of limitation, not of emphasis. In
other words, the National Assembly was (and is) incompetent to
legislate on any incident of trade and commerce which is not
captured within those provisions. This includes, in my view, any
law by which the Assembly purports to impose any tax on such
activity. I believe that this view is valid, notwithstanding the
temptation to construe the provisions of Item 59
as special, whilst those of Item 62 are general.
In other words, any such inclination should be rejected as
illegitimate, for the simple reason that it is illogical to purport
to tax the outcome or product(s) of an activity, which, in itself,
the National Assembly is incompetent to regulate. I believe it is
either all or nothing, and you can’t have one without the
other.

This argument is borne out by the definitions of
‘trade’ and ‘commerce’, as follows,
respectively:

‘Trade’ is defined (by Adam Hayes, in www.investopedia.com^[1]), as:

“A basic economic concept, involving the buying and selling
of goods and services with compensation paid by a buyer to a
seller, or the exchange of goods and services between parties.
Trade broadly refers to transactions ranging in complexity from
the collectors to multinational policies to set protocols for
imports and exports between countries. Almost every kind product
can be found on the international market including currencies.
Services are also traded: banking, tourism, consulting and
transportation. A product that is sold to the global market is an
export and a product that is bought from the global market is an
export.”

As for ‘Commerce’, it is defined (by James Chen, also
in www.investopedia.com^[2]), as
“Generally (referring) to the exchange of goods,
services or something of value between businesses or entities. It
refers to the macro-economic purchases and sales of goods and
services by organizations. Commerce is a subset of business that
focuses on the distribution aspect of business as opposed to the
production side. The buying or selling of a single item is known as
a transaction, whereas all the transactions of that item in an
economy are known as commerce. E-commerce is a variant of commerce
in which goods are sold electronically on the internet. Most
commerce is conducted internationally and represents the buying and
selling of goods between nations”

I believe that the foregoing definitions put it beyond doubt
that the case of ABERUAGBA applies to foreclose
any possibility that the National Assembly is competent to regulate
(or tax) any trade or commerce which is not specified in
Item 62 of the Exclusive Legislative List of the
Constitution. This is all the more so, I believe, because
the Constitution has spelt out the plenitude of the powers which it
confers on the National Assembly. In this regard, in
ATTORNEY-GENERAL OF BENDEL STATE vs. ATTORNEY-GENERAL OF
THE FEDERATION (1981) 10 S.C. 131, the apex court held,
inter alia, that “under a Constitution conferring
specific powers, a particular power must be granted, or it cannot
be exercised”. This means that, to the extent that the
Constitution does not empower the National Assembly to regulate
non-International/non-Inter-State trade and commerce, the Assembly
cannot impose any tax on the incidents/constituents of such
transactions.

Conclusion

The on-going public hearings into the reform of the 1999
Constitution are a rare opportunity to correct some of the glaring
anomalies in that important document. Nowhere is this intervention
more urgently needed than in its, frankly, sketchy provisions
dealing with the taxing powers of the National Assembly. Given the
established judicial policy (right up to the apex court) of
construing tax provisions strictly, it is an obvious policy
imperative to put the constitutional powers of the Assembly beyond
conjecture by stating them explicitly ex abundantia
cautella – out of an excess of caution. Otherwise, no one
should blame any court which is seised with a tax recovery claim if
it seemingly lets a defendant ‘off the hook’ or otherwise
gives him or her a so-called ‘soft-landing’ based on the
present anomalous state of our tax laws – including, worryingly, in
the Constitution.

Abubakar D. Sani, Esq.

25^th June, 2021