The battle of consumption tax has been won, and Lagos State is the victor. The vanquished, hoteliers, event centers and restaurants are sober on the uncertainty the state’s victory will bring upon their businesses.
On the 3rd of October, the Federal High Court delivered its judgement on the case between The Registered Trustees of Hotel Owners and Managers Association of Lagos (RTHMAL), and the (defendants), the Attorney General of Lagos State and the Federal Inland Revenue Services.
The verdict reads that the Hotel Occupancy and Restaurant Consumption (HORC) law is legitimate and must be abided by.
The ruling was based on states’ right to legislate as supported by the second schedule to the constitution of the Federal Republic of Nigeria, which makes tax a residual issue that states can legislate on. Since it does not fall under the exclusive legislative list or the concurrent legislative list.
The schedule to the Taxes and Levies (Approved List for Collection) Act order of 2015, (as amended), includes hotel, restaurant or event center consumption tax as the taxes at the disposal of states to collect.
However, the judgement has thrown further anxiety upon those in the hospitality industry. At a time when businesses are feeling overburdened with multiple taxation in Lagos, experts believe that that the new 5% tax will do more harm than good.
Presently, there are over 24 taxes and levies payable to the states and federal government, and Lagos State is having a high stake. There is company tax, consumption tax, hotel license, personal income tax, parking permits, land use charge, radio and TV permit, wastewater request and VAT. etc.
Although the ruling restricts the Federal Inland Revenue Service (FIRS), from extracting VAT from restaurants, event centers and hotels, operators are worried that there will be little or nothing to show for the taxes collected by the state government.
Victor Edosomwan, founder and CEO of Vicwan Limited, a hospitality and lifestyle consulting firm said:
“The hotels have to provide their own power and evacuate sewage on their own; these should be provided by the government.”
The hospitality industry operators are also concerned that the recent development may likely put many out of business, especially the minor companies in the industry. Their fear is that additional cost to food and services will scare customers away in the business that is already experiencing low patronage.
The interpretation of the judgement also means that FIRS will stay away from VATs emanating from the hospitality industry under states.