By Olumide Elajuku-Wilson

Abstract

Nigeria has recently embarked on ambitious fiscal reforms, notably through the Nigeria Tax Act, 2025 and the Value-Added Tax (Modification) Order, 2024. These reforms seek to expand the tax base, enhance administrative efficiency, and align the domestic regime with global standards. However, Nigeria’s federal structure, characterised by the division of taxing powers between federal and state governments, has generated significant legal and practical obstacles to enforceability and compliance. This article interrogates the constitutional, statutory, and judicial dimensions of these challenges, it further evaluates the practical and institutional impediments to effective enforcement and offers pathways for harmonisation and improved compliance.

Introduction

Taxation remains the bedrock of fiscal sovereignty and a principal driver of state capacity. In Nigeria, the quest for increased non-oil revenue has resulted in successive rounds of legislative and administrative reforms. The most recent are the Nigeria Tax Act, 2025, signed into law on 30 June 2025 and the Value-Added Tax (Modification) Order, 2024, which broadened the VAT base. These reforms, while laudable, have reopened long-standing debates on the constitutional allocation of taxing powers, the validity of overlapping federal and state levies, and the operational readiness of tax authorities across subnational units.

This article examines the challenges to enforceability and legal compliance of these reforms across Nigeria’s 36 states. It argues that without constitutional clarity, judicial consistency, and institutional harmonisation, the reforms risk entrenching litigation and uneven compliance.

Constitutional Framework of Taxation in Nigeria

The 1999 Constitution (as amended) establishes a federal system in which legislative competence is divided between the National Assembly and State Houses of Assembly. Taxation appears within this division:

I. The Exclusive Legislative List (Part I, Second Schedule) grants the federal government competence over taxation of incomes, profits, and capital gains.
II. The Concurrent List allows both federal and state legislation in limited areas.

III. By virtue of section 4(5), where a federal law “covers the field,” any inconsistent state law remains inoperative.
This doctrine of federal supremacy has been pivotal in tax litigation, particularly in respect of consumption taxes.

Statutory Landscape of the New Reforms

1. Federal Tax Laws

i. Companies Income Tax Act (CITA) governs corporate taxation at the federal level
ii. Personal Income Tax Act (PITA) assigns personal income tax to states, subject to federal legislative framework.
iii. Value-Added Tax Act (VATA) and the VAT (Modification) Order, 2024 establish and expand federal VAT, effectively occupying the field of general consumption taxation.

2. The Nigeria Tax Act, 2025

The 2025 Act introduced far-reaching reforms, including:

i. Adjustments to minimum tax regimes.
ii. Provisions to align with the Organization for Economic Cooperation and Development global minimum tax initiative.
iii. Broadened VAT categories and tightened exemptions.
iv. Enhanced compliance measures through electronic Tax Identification Number (TIN) verification.

3. Subnational Taxation

States retain powers to legislate on certain taxes, such as property tax, land use charges, and selected fees. However, attempts by states to impose consumption taxes parallel to VAT have been contentious and repeatedly litigated.

Case law on Federal and State Tax Conflicts

As far back as 1985, in the locus classicus case of Attorney-General of Ogun State v Aberuagba, the Supreme Court held that State Governments are only empowered to impose sales tax (a form of consumption tax) on intra-state transactions, without more. The implication of the Supreme Court’s decision is that State Governments cannot validly impose sales tax on inter-state or international transactions, both of which are matters exclusively reserved for the Federal Government of Nigeria on the Exclusive Legislative List. Thus, the Supreme Court struck down the Sales Tax Law of Ogun State to the extent that it imposed sales tax on international and inter-state trade and commerce.

Meanwhile, in the more recent case of Attorney-General of Lagos State v. Eko Hotels Ltd. & Anor, the Supreme Court held that where a federal law validly legislates on a matter (in this case, VAT), any state law on the same subject becomes inoperative under the doctrine of “covering the field.” In this case, the 1st Respondent (Eko Hotels Limited) was required, under both legislation, to collect tax at the rate of 5% on the price of the goods and services offered to its customers, and to further remit same to the relevant tax authorities. The 1st Respondent argued that it was difficult to comply with both statutes, as it would amount to double taxation. The Supreme Court noted that both the VAT Act and the Sales Tax Law of Lagos State provide for the collection of consumption tax on certain consumable items and that the rates upon which charges were made under both laws were similar. The Supreme Court ultimately held that the VAT Act had fully covered the field on consumption tax in Nigeria, and to that extent, the Lagos State Sales Tax Law was void. The Supreme Court reasoned that applying both laws simultaneously would amount to double taxation, with the consumers ultimately bearing the financial burden of both statutes.

Challenges to Enforceability and Compliance of the new tax reforms across states

I. Constitutional and Jurisdictional Conflicts
Federal reforms that extend VAT into areas where states also legislate generate constitutional disputes. State consumption tax laws, such as those enacted in Lagos, have repeatedly been held in abeyance. This legal uncertainty undermines compliance and emboldens taxpayer litigation.

II. Multiplicity of Taxes and Double Taxation

Businesses often face a proliferation of levies environmental charges, signage fees, local levies, creating overlapping obligations with federal VAT. The result is higher compliance costs and increased risk of arbitrary enforcement.

III. Administrative and Institutional Weaknesses

State Internal Revenue Services (SIRS) vary widely in capacity. While some states employ digital platforms and efficient audit systems, others lack basic infrastructure. Without interoperability with FIRS systems, compliance monitoring remains fragmented.

IV. Political Resistance and Fiscal Federalism

States fear loss of fiscal autonomy and revenue share under federal reforms. Political pushbacks, including refusal to remit or parallel state legislation, undermines uniform enforcement.

V. Transitional Ambiguity

Ambiguities in commencement provisions and subsidiary regulations have generated disputes over retroactive application. Without clear transitional frameworks, enforcement actions risk judicial invalidation.

Recommendations

A. Legal Harmonisation
Federal and state legislatures should collaborate to enact model tax laws, delineating clear taxing powers and eliminating duplicative levies.
B. Strengthening the Joint Tax Board (JTB)
The JTB should be empowered to serve as a binding coordinating authority, harmonising taxpayer registration, compliance systems, and dispute resolution mechanisms.
C. Technological Integration
A unified Tax Identification Number (TIN) system accessible to both FIRS and SIRS will reduce duplication, improve audits, and ease compliance.
D. Capacity Building
Targeted investment in state tax administrations, including digitalisation, training, and audit capacity, is essential for uniform enforcement.
E. Dispute Resolution
Fast-track tax tribunals and ADR mechanisms should be expanded to reduce prolonged litigation and provide certainty to taxpayers.

Conclusion

The enforceability of Nigeria’s new tax reforms is constrained by constitutional ambiguities, judicial precedent, and institutional weaknesses at the state level. The Supreme Court has repeatedly emphasised the doctrine of covering the field, rendering many state consumption taxes inoperative. Unless deliberate efforts are made to harmonise the federal and state tax regimes, administrative fragmentation and political contestation will continue to undermine compliance and revenue mobilisation. A sustainable path forward requires a blend of constitutional clarity, institutional cooperation, and technological modernisation. Only then will Nigeria’s tax reforms deliver their intended fiscal dividends.

References

1. Constitution of the Federal Republic of Nigeria 1999 (as amended), s 4 and Second Schedule.
2. Constitution of the Federal Republic of Nigeria 1999 (as amended), s.4(5).
3. 1985) 1 NWLR (Pt. 3) 395.
4. (2017) LPELR-43713(SC).