Nigeria: FCT High Court Rules On The Imposition Of Taxes And Levies By Local Government Councils

On 14 January 2019, the High Court of the Federal Capital Territory ("FCT High Court" or "the Court" held that Local Government Area Councils (LGCs) in the Federal Capital Territory (FCT) cannot impose unconstitutional taxes and levies on companies, in the case between Abuja Electricity Distribution Company (AEDC) v. Kuje Area Council (KAC). According to the Court, the LGCs have no legislative power to create or impose any tax or levy outside the ambits of the Constitution and the Taxes and Levies (Approved List for Collection) Act. The Court reached this decision on the grounds that Section 299 of the Constitution vests the legislative powers of the FCT in the National Assembly.
Details
Abuja Electricity Distribution Company is an Electricity Distribution Company licensed by the National Electricity Regulatory Commission to carry out electricity distribution within and around the FCT, Kogi, Nassarawa and Niger States.
KAC, an LGC in the FCT, issued and served demand notices on AEDC, demanding sums amounting to N540,000 as levies/fees for outdoor advertisements, corporate parking, sanitation and operational permit for 2015 and 2016.
In response to the demand notices, AEDC instituted an action at the FCT High Court seeking, amongst other things, a declaration that KAC has no legislative competence and power to unilaterally create and impose new taxes and levies outside the provisions of the Taxes and Levies (Approved List for Collection) Act.
The Court ruled in favour of AEDC, holding that KAC acted ultra vires by imposing taxes and levies that are outside the ambit of the Fourth Schedule to the Constitution and Part III of the Taxes and Levies (Approved List for Collection) Act. The Court relied on the provisions of Section 299 of the 1999 Constitution stating that the legislative powers of the FCT is vested in the National Assembly and that the LGCs of the FCT do not have the powers to create new heads of taxes in the absence of any enabling legislation by the National Assembly.
Although the Court held that there was no legal basis for the imposition of corporate parking, sanitation and operational permit fees by the LGC, it affirmed the powers of the LGC to impose levies for outdoor advertisement because this is contained in the Taxes and Levies (Approved List for Collection) Act and in line with the Constitution.
Implication
Based on this Judgment, LGCs in the FCT cannot unilaterally create or impose any form of taxes or levies outside those listed in the Fourth Schedule to the Constitution and the Taxes and Levies (Approved List for Collection) Act. The Judgment is in line with established judicial precedence that a LGC can only impose or create new taxes and levies where there is an enabling law to that effect.
Consequently, taxpayers who have been issued assessments for taxes and/or levies that appear contentious need to evaluate such assessment in the light of existing laws and relevant guidelines. Taxpayers are also encouraged to seek professional advice when in doubt regarding seeming arbitrary tax assessments.