Court Nullifies Delta’s 5% Consumption Tax on VAT-Covered Transactions

The Federal High Court in Abuja struck down the legal provisions supporting Delta State’s five per cent consumption tax on VAT-covered transactions. It set aside Sections 3 and 4 of the Delta State Hotel Occupancy, Restaurants and Departmental Stores Consumption Tax Law, 2017. It also invalidated Section 7(b), Item 13 of the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order No. 77 of 2015.

The court issued a perpetual injunction. This means the named defendants cannot implement or enforce the affected provisions. The restriction covers the Delta State Attorney-General and Commissioner for Justice, the Delta State Board of Internal Revenue, and their agents or representatives.

Justice Peter O. Lifu delivered the judgment on October 9, 2026. He found the disputed levy could not stand where it overlapped with the federal VAT framework. The ruling followed a challenge by NECA and Retail Supermarkets Nigeria Limited, which operates Shoprite stores.

The Delta State consumption tax was created under the Hotel Occupancy, Restaurants and Departmental Stores Consumption Tax Law, 2017. It imposed a five per cent charge on specified goods and services supplied by restaurants, supermarkets, and departmental stores. The tax was presented as a state levy, separate from the federal VAT system.

Its practical target included businesses such as Shoprite, which operates retail outlets in Delta State, as well as restaurants and other departmental stores. The disputed transactions were those already covered by VAT under the federal framework. The plaintiffs argued that charging both levies could create overlapping obligations.

The court focused on whether Delta could impose this separate charge when VAT already applied. The defendants said the taxes worked differently and that VAT was excluded from the state tax calculation. Justice Lifu nevertheless invalidated the challenged provisions, preventing their enforcement.

The disputed consumption tax was set at five per cent. That rate applied to specified goods and services supplied by restaurants, supermarkets, and departmental stores under the Delta State law. The plaintiffs objected because these transactions could also fall within the federal VAT regime.

NECA brought the case alongside Retail Supermarkets Nigeria Limited, which operates Shoprite stores. The article states that NECA represents more than 480 corporate members. Its participation showed that the dispute concerned a wider business community, not only one retailer or one transaction.

The plaintiffs argued that the additional levy would raise tax obligations for businesses and consumers in Delta State. They sought declarations against both the state law and the federal amendment-order provision that they said authorised the overlapping charge. The Federal High Court ultimately nullified the challenged provisions and barred enforcement.

The central concern was an overlapping tax burden. Businesses supplying covered goods and services could have faced the federal VAT regime while also collecting or paying the separate five per cent Delta consumption tax. That extra obligation could raise compliance costs and the amount charged through transactions.

For example, a supermarket operating in Delta State could sell goods subject to VAT and also apply the state consumption charge. Restaurants and departmental stores faced the same concern for specified supplies. NECA and Shoprite argued that the additional levy increased the burden on businesses and consumers.

The defendants said the taxes were different because VAT was collected at multiple stages, while the state tax applied at one stage. They also said VAT was excluded from the state tax calculation. The court rejected the idea that different collection methods alone justified another tax on VAT-covered transactions.

The defendants argued that Delta’s tax avoided double taxation because Section 4 excluded VAT from the calculation of the state consumption tax. They also distinguished the taxes by saying VAT was collected at multiple stages, while Delta’s levy applied at one stage.

The court treated those differences as insufficient. Excluding VAT from the formula only meant the state tax was not calculated on top of a VAT-inclusive amount. It did not change the fact that both levies applied to the same covered transactions. The overlap remained the legal issue.

Justice Lifu examined the relationship between the state tax and the federal VAT framework, including the Supreme Court’s decision in Attorney-General of Lagos State v. Eko Hotels Limited. He concluded that the separate charge could not stand merely because its calculation and collection operated differently. The challenged provisions were therefore invalidated.

Section 4(5) of Nigeria’s 1999 Constitution establishes a conflict rule. When a state law is inconsistent with a valid law enacted by the National Assembly, the federal law prevails. The state provision is displaced only to the extent that the inconsistency exists.

In this dispute, the court considered whether Delta’s separate consumption tax conflicted with the federal VAT framework. NECA and Shoprite argued that the state provisions created an overlapping tax on transactions already governed by VAT. Justice Lifu examined that claimed conflict while deciding the law’s validity.

The constitutional rule mattered because the plaintiffs also challenged the federal amendment order. After preliminary objections were dismissed, the court held that the challenge fell within its constitutional jurisdiction under Section 251. It then set aside the disputed Delta provisions and the specified amendment-order item, stopping the named authorities from enforcing them.

Value-added tax, or VAT, is collected at multiple stages of a transaction, according to the defendants’ explanation in the case. A product or service may therefore pass through several business steps before reaching the final buyer, with VAT applying within that chain. The article contrasts this with Delta’s tax, which applied at a single stage.

For example, a supplier, retailer, and customer may be involved in bringing goods to the market. If the transaction is already within the federal VAT framework, a separate state consumption charge on the same supply creates another tax obligation. The state levy could then affect the business collecting it and the consumer paying the price.

The defendants argued that the different stages prevented double taxation and that VAT was excluded from the state tax calculation. Justice Lifu rejected that reasoning. The court held that different collection methods did not make the additional levy lawful where the transactions were already VAT-covered.