Plateau State Internal Revenue Service V. Jos Electricity Distribution Plc: Do The Tax Appeal Tribunal And The Federal High Court Have Jurisdiction Over Tax Disputes Relating To The Revenue Of A State Government?

BACKGROUND

The question of the exercise of jurisdiction by the Tax Appeal Tribunal ("TAT") and the Federal High Court("FHC") over disputes relating to the revenue of a state government, especially personal income tax, has elicited conflicting judicial decisions. (For example, see most recently Skye Bank v Kwara State Internal Revenue Service (2021) 12 NWLR (Pt. 1789) 27 ("Skye Bankcase") and RECTARS (Ile-Ife) v Osun State Board of Internal Revenue (2021) LPELR-55942(CA) ("Rectars case").) This has arisen partly because the Personal Income Tax Act ("PITA"), which is a federal legislation, enables state governments to collect personal income tax of individuals resident within each state. In Plateau State Internal Revenue Service v. Jos Electricity Distribution Plc (2025) 90 TLRN 01, the Court of Appeal held that the TAT and the FHC have jurisdiction to hear and determine disputes relating to personal income tax (and other federal taxes) payable to a state government – but not disputes relating to revenues accruable to a state government pursuant to a law made by a state government.

FACTS

Plateau State Internal Revenue Service ("PSIRS") as appellant commenced an action at the TAT against Jos Electricity Distribution Plc ("JED") for the recovery of taxes payable to the Plateau State Government (or "State") under the PITA and other tax laws enacted by the Plateau State House of Assembly, including alleged unremitted pay-as-you-earn ("PAYE") tax, withholding tax ("WHT") on contracts and supplies, purchase of energy and other contracts, and development levy for2015 and 2016. JED challenged the jurisdiction of the TAT to hear and determine the appeal on the ground that the taxes in dispute were not taxes payable or due to the federal government. The TAT however assumed jurisdiction over the matter and granted part of the reliefs sought by PSIRS. Aggrieved by the decision of the TAT, JED appealed to the FHC. The FHC allowed the appeal holding that neither the TAT nor the FHC has jurisdiction over disputes arising from taxes payable to the State. Dissatisfied with the FHC judgment, PSIRS appealed to the Court of Appeal.

THE APPEAL

On appeal, PSIRS argued that the FHC erred in law when it held that the TAT lacked jurisdiction over the dispute. PSIRS contended, amongst others, that (a) the claim brought before the TAT was initiated pursuant to the PITA, and (b) by s. 59 of the Federal Inland Revenue Service (Establishment) Act ("FIRS Act") and s. 60 of the PITA, the TAT had jurisdiction over all matters arising from the operation of the PITA, including disputes concerning PAYE tax payable to the State. PSIRS further argued that the lower court ought to have relied on the Rectars case, which was decided on 5 November 2021 rather than the Skye Bank case decided earlier on.

In response JED argued that the FHC rightly held that the TAT did not have jurisdiction over disputes relating to taxes payable to the State. Regarding s. 60 of the PITA, JED argued that the jurisdiction of the TAT in respect of disputes arising from the PITA was restricted to personal income tax payable to the federal government and that a state law (i.e., the Plateau State Revenue (Consolidation) Law, 2020 ("Plateau State Revenue Law") could not confer jurisdiction on the TAT.

In deciding the appeal, the Court of Appeal considered, inter alia, whether the FHC was right in holding that the TAT does not have jurisdiction in disputes arising from taxes due to a state government. In resolving this issue, the Court of Appeal considered the following:

• The conclusion of the FHC that PAYE is governed by state law - not by the PITA
• Section 251(1)(b) of the Constitution
• Section 60 of the PITA
• Section 87 of the PITA
• Jurisdiction of the High Court of a state over disputes relating to state revenue.

The conclusion of the FHC that PAYE is governed by state law – not by the PITA

The Court of Appeal disagreed with the conclusion reached by the FHC that (a) state laws govern PAYE tax payable to a state and that any related dispute should be determined by the court specified by state law, i.e., the Plateau State Revenue Law in the instant case, and (b) the jurisdiction over PAYE tax is therefore vested in the High Court of Plateau State as provided in the Plateau State Revenue Law because the tax is payable to the State. In arriving at this position, the Court of Appeal drew a distinction between the "the power to impose tax" and "the power to collect tax". Accordingly, the fact that personal income tax is payable to, or collected by, a state government (power to collect tax) does not make it a state tax: the question whether a tax is a state tax or federal tax is determined by reference to whether the tax is imposed (power to impose tax) by a state government or the federal government. The Court of Appeal therefore concluded that the PITA is a federal legislation because it was enacted by the federal government pursuant to its power under the Constitution (item D, paragraphs 7 and 8, part II, second schedule to the Constitution); and it is not within the legislative competence of a state government to make laws on the taxation of income and profits. It therefore determined that PAYE tax (and WHT in this instance) is a component of personal income tax, which is imposed by the PITA.

Section 251(1)(b) of the Constitution

The court also considered s. 251(1)(b) of the Constitution, which provides that the Federal High Court shall have exclusive jurisdiction in all civil matters "connected with or pertaining to the taxation of companies and other bodies established or carrying on business in Nigeria and all other persons subject to Federal taxation". (Emphasis supplied.) In interpreting s. 251(1)(b) of the Constitution, the lower court did not properly consider the phrase "and all other persons subject to Federal taxation". The lower court however implied that federal or state taxation was dependent on "whom the tax accrued to" when it concluded that the "PITA governs federal taxation, whilst the State Board of Internal Revenue Laws govern State Pay-As-You-Earn tax".

Having determined that the PITA is a "federal legislation", the Court of Appeal further determined that personal income tax is a federal tax or federal taxation. Considering therefore that s. 251(1)(b) of the Constitution grants exclusive jurisdiction to the FHC over civil matters concerning or pertaining to persons subject to federal taxation, the Court of Appeal held that the FHC has exclusive jurisdiction over disputes arising from the PITA, including disputes relating to PAYE tax and WHT (which form part of personal income tax).

Section 60 of the PITA

The Court of Appeal traced the history of s. 60 of the PITA, which extended the jurisdiction of the TAT to all matters arising from the PITA and concluded that the amendment of the PITA in 2011 to include s. 60, (which provides that "The [TAT] established pursuant to Section 59 of the [FIRS Act] shall have the powers to entertain all cases arising from the operations of this Act") extended the jurisdiction of the TAT to all disputes or controversies arising from the operation of the PITA. The Court of Appeal further considered the Skye Bank case and the Rectars case and found the decision in the Rectars to be consistent with the legislative intent in the s. 60 amendment.

Section 87 of the PITA

Section 87 of the PITA established for each state of the federation a State Board of Internal Revenue. Many states have in addition to the PITA enacted state laws that not only provide for the establishment (or reestablishment) of a state tax authority but also confer jurisdiction on state courts over taxes accruing to the state, including personal income tax. The Court of Appeal held there was no legal basis for the Plateau State Government to make laws on any aspect of income tax or the PITA, including provisions for the resolution of disputes arising under the PITA. This is because, by item 59, part I, second schedule to the Constitution (i.e., the exclusive legislative list), the National Assembly has exclusive power to legislate on taxation of incomes, capital gains, and stamp duties. The State therefore had no power to confer jurisdiction to adjudicate disputes arising under the PITA on a court other than as provided in the PITA.

The jurisdiction of the High Court of a state over disputes relating to state revenue

Although the Court of Appeal held that the provisions of the Plateau State Revenue Law were subject to the PITA with regard to matters covered by the PITA, it however held that the State High Court has jurisdiction to determine disputes relating to taxes imposed by the State, being taxes and levies that do not come under the exclusive legislative list, such as land related taxes, development levy, and infrastructure levy. In the words of Affen JCA who delivered the leading judgment:

"In the light of the foregoing, the inevitable conclusion to which I must come is that the lower court did not get it right when it adjudged the [TAT] as being bereft of jurisdiction to entertain the claim of PSIRS in its entirety. Quite the contrary, the [TAT] has jurisdiction in respect of reliefs (a) and (e). Issue 2 is resolved in favour of the Appellant to that limited extent."

In the result, the Court of Appeal sustained the decision of the FHC on the reliefs founded on the PITA and struck out the reliefs founded on the Plateau State Revenue Law for want of jurisdiction.

COMMENT

It would appear that the primary contribution of the PSIRS case to tax jurisprudence in Nigeria is the interpretation and application of the phrase "persons subject to Federal taxation" ("federal taxation phrase") in s. 251(1)(b) of the Constitution in determining the jurisdictional challenge in tax litigation - usually between the TAT and the FHC on the one hand and the High Court of a state on the other hand. The courts determined the dispute in previous cases by reference to s. 251(1)(a) of the Constitution, (b) s. 251(1)(b) of the Constitution (but without attention to the federal taxation phrase), and (c) s. 251(1)(r) of the Constitution. The resolution of the jurisdictional dispute in these earlier cases was therefore based on whether (a) the revenue in issue accrued to the federal government (in which an agency of the federal government was a party to the suit) or a state government, and or (b) the dispute arose from the taxation of companies. For example, in A.G. Lagos State v Eko Hotels Limited (2018) 7 NWLR (Pt. 1619) 518, Kekere-Ekun JSC (as she then was) who delivered the leading judgment held that the FHC had jurisdiction in the matter based on s. 251(1)(b) and (r) of the Constitution, i.e., that the liability sought to be enforced was that of a company, and an agency of the federal government, i.e., FIRS, was a party to the suit. The majority decision of the Court of Appeal in Lagos State Internal Revenue Board v. Motorola Nig. Ltd & anor (2012) LPELR-14712(CA) was also based on s. 251(1)(a) of the Constitution.

In the Skye Bank case Saulawa JCA (as he then was) who delivered the leading judgment of the court relied on s. 59 of the FIRS Act and s.60 of the PITA to hold that the TAT did not have jurisdiction to entertain disputes relating to revenues accruing to a state government, including disputes that arose from the PITA as follows:

The decision in the Skye Bank case is however difficult to follow. First, the effect of s. 59 of the FIRS Act and s. 60 of the PITA is the opposite of what the Court of Appeal decided. Further, neither Wilbros (Nig) Ltd v. A.G Akwa Ibom State & anor (2007) LPELR-8182(CA) ("Wilbros case") nor Shittu v N.A.C.B. Ltd (2001) 10 NWLR (Pt.721) 298 ("Shittu case") on which the Court of Appeal relied decided that s. 59 of the FIRS Act and s. 60 of the PITA confine the jurisdiction of the TAT to "taxes and levies that are due the Federal Government of Nigeria under the [FIRS Act]". The Wilbros case was decided based on s. 251 of the Constitution. And the Court of Appeal resolved the jurisdictional tussle in favour of the High Court of Akwa Ibom State because the revenues in issue in the suit accrued to the Government of Akwa Ibom State. The Shittu case, on the other hand, did not consider s. 59 of the FIRS Act or s. 60 of the PITA.

The PSIRS case is also remarkable for bringing into focus the distinction between the "power to impose tax" and "power to collect tax" - on the basis of which it established the framework for determining "federal taxation". (The Court of Appeal appeared to have conflated these powers in Lagos State Internal Revenue Board v. Motorola Nig. Ltd & anor (supra).)

The decision in the PSIRS case provides a formidable legal basis (anchored on s. 251(1)(b) of the Constitution, s. 59 of the FIRS Act, and s. 60 of the PITA) for the proposition that the TAT (and by extension the FHC) has jurisdiction over all tax disputes arising from the PITA and other federal tax legislation, notwithstanding that the taxes are collected by, or accrue to, a state government. (Although the federal taxation phrase in s. 251(1)(b) of the Constitution was canvassed in Lagos State Internal Revenue Board v. Motorola Nig. Ltd & anor (supra), the majority decision did not consider it, but rather decided the case based on s. 251(1)(a) of the Constitution.) Therefore, the PSIRS case may have conclusively provided a clear framework for resolving the jurisdictional challenge in tax litigation between the TAT and the FHC on the one hand and the High Court of a state in respect of taxes collected by, or accruing to, a state government. The case has also decided the point that the TAT (and by extension the FHC in exercise of its appellate jurisdiction) does not have jurisdiction to determine disputes arising from taxes created or imposed by a state government pursuant to a law validly made by the House of Assembly of a state.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.