The Legal Challenge to the 2020 VAT Modification Order on Food Sales in Restaurants and Hotels: An In-Depth Analysis The legal battle initiated by Chief R.O. Balogun, SAN, at the Federal High Court in Ilorin, Kwara State, is set to redefine the interpretation and enforcement of Value Added Tax (VAT) on food sold in restaurants, hotels, eateries, and similar establishments across Nigeria. This landmark case challenges the legality of the 2020 VAT Modification Order and could have far-reaching implications for businesses, consumers, tax authorities, and policymakers. This article offers a comprehensive analysis of the key legal arguments, implications for various stakeholders, and the potential impact on Nigeria’s tax administration system. 1. Background: Understanding the 2020 VAT Modification Order a. Overview of VAT in Nigeria The Value Added Tax Act, Cap V1, LFN 2004 (as amended) and subsequent Finance Acts govern the imposition, collection, and administration of VAT in Nigeria. VAT is a consumption tax levied on the supply of goods and services, with certain exemptions listed under the VAT Act. b. The VAT Modification Order 2020 The Minister of Finance issued the VAT Modification Order 2020 to clarify exemptions for certain goods and services, including basic food items. Key provisions include: Exemption of agro-based and aqua-based food items from VAT. Exclusion of food sold in restaurants, hotels, and eateries from the basic food exemption, making such sales subject to VAT. The effect of this order is that while food items purchased from markets and supermarkets are VAT-exempt, the same food prepared and served in restaurants or hotels attracts VAT. 2. Chief Balogun’s Legal Challenge: Key Issues and Arguments Chief Balogun’s petition centers around three major legal arguments: a. Unconstitutionality of VAT on Food Sold in Restaurants The First Schedule of the VAT Act provides that basic food items are VAT-exempt. The imposition of VAT on food sold in restaurants and hotels, as mandated by the VAT Modification Order, conflicts with the VAT Act, rendering the order unconstitutional and ultra vires. Under Section 4 of the 1999 Constitution, only the National Assembly has the power to impose taxes. Therefore, a ministerial order cannot override an Act of the National Assembly. b. Misinterpretation of VAT Collection vs. Tax Evasion Chief Balogun argues that the failure of his client, Item 7 Go, to collect VAT on food sold in their restaurant does not constitute tax evasion. Tax evasion involves the deliberate non-remittance of collected tax. In this case, the dispute is about applicability, not evasion. He asserts that a genuine dispute over tax applicability should not be criminalized. c. EFCC’s Overreach and Jurisdictional Breach The Economic and Financial Crimes Commission (EFCC), through its Special Control Unit Against Money Laundering (SCUML), is investigating VAT compliance at Item 7 Go as part of a money laundering probe. Chief Balogun asserts that VAT enforcement falls under the exclusive jurisdiction of the Federal Inland Revenue Service (FIRS) He argues that the EFCC’s demand for VAT remittance records, account statements, and BVN details constitutes an abuse of power and jurisdictional overreach. The focus of the EFCC should be on financial crimes, not tax administration and enforcement. 3. Reliefs Sought and Expected Court Rulings Chief Balogun is seeking the following reliefs: A declaration that the VAT Modification Order 2020 is unconstitutional and should be annulled. An injunction restraining the EFCC from harassing his client over VAT compliance issues. A ruling affirming that VAT enforcement lies exclusively with the FIRS. An order protecting his client from further harassment and abuse of office by the EFCC. 4. Implications for Businesses, Consumers, and Tax Authorities a. Impact on the Restaurant and Hospitality Industry If the court rules in favor of Chief Balogun, restaurants, hotels, and eateries across Nigeria may stop charging VAT on food sales. This could lead to a reduction in food prices, making dining out more affordable for consumers. However, businesses that have been collecting and remitting VAT on food sales may seek refunds or compensation for past VAT payments. b. Impact on Government Tax Revenue The Federal Government, through the FIRS, relies on VAT as a significant source of revenue. An annulment of VAT on restaurant food could result in a decline in tax revenue, particularly from the hospitality sector. This may prompt the government to seek alternative revenue sources or introduce legislative amendments to formally include restaurant food in VAT charges. c. Implications for Tax Administration and Compliance If the court rules against the EFCC’s involvement in VAT enforcement, it could limit the scope of law enforcement agencies in tax matters. This would reaffirm the FIRS’s exclusive authority over VAT enforcement and compliance. It could also set a precedent for future disputes over tax enforcement jurisdiction. 5. Possible Legislative and Policy Reactions a. Amendment to the VAT Act The Federal Government may seek to amend the VAT Act to explicitly include restaurant food as taxable. This could involve a Finance Act amendment or other legislative action to address the court’s ruling. b. State-Level VAT Policies State governments, particularly those implementing consumption tax, may reassess their consumption tax policies on food and hospitality services. This could lead to a diversification of tax policies across different states. 6. Future of VAT Enforcement and Tax Administration in Nigeria This case raises several important questions: Can a ministerial order override an Act of the National Assembly? Should VAT be applied to food sold in restaurants, despite the exemption on basic food items? Is the EFCC legally empowered to enforce VAT compliance, or should this role be reserved exclusively for the FIRS? The court’s ruling will be closely watched by: Businesses in the hospitality sector, who may need to adjust their VAT collection policies. Tax professionals and accountants, who will use the ruling as a reference point for future VAT disputes. Legal experts and policymakers, who may need to revisit Nigeria’s tax laws to clarify ambiguities and address enforcement issues. 7. Conclusion: A Landmark Case with Far-Reaching Implications The court’s decision on March 3, 2025, will have a profound impact on the future of VAT collection on restaurant food in Nigeria. If the petition succeeds: Restaurants and hotels may stop charging VAT on food sales. The government may need to amend the VAT Act to maintain revenue. The EFCC’s jurisdiction in tax matters may be limited. If the petition fails: VAT will continue to apply to food sold in restaurants and hotels. The EFCC’s involvement in tax compliance matters may set a precedent for future cases. This case underscores the importance of legal clarity in tax administration and highlights the need for respecting jurisdictional boundaries in enforcement actions. It also raises questions about the relationship between tax administration and law enforcement in Nigeria. Olatunji Abdulrazaq CNA, ACTI,ACIArb(UK) Founder/CEO, Taxmobile.Online