Lagos State has won a case in court upholding Nigeria commercial capital’s statutory authority to impose a consumption tax on hotels, restaurants and event centres, experts say this will impact smaller players the most.
Under the Federal High Court’s judgment of October 3, in the case between The Registered Trustees of Hotel Owners and Managers Association of Lagos (RTHMAL) and the Attorney-General of Lagos State and the Federal Inland Revenue Service (“the Defendants”) the Hotel Occupancy and Restaurant Consumption (HORC) Law and Regulations issued by Lagos State is valid and must be complied with by RTHMAL.
The Court, relying on the provisions of the Second Schedule to the Constitution of the Federal Republic of Nigeria, said that consumption tax neither falls under the exclusive legislative list nor the concurrent legislative list. Rather, it is a residual matter on which States are empowered to legislate. This is contained in the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015, which includes “Hotel, Restaurant or Event Centre Consumption Tax” as one of the taxes that may be collected by State Governments.
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Analysts say the new consumption tax of 5 percent may not serve the hospitality industry well given that there are already multiple taxes and everyday Nigerians are so price sensitive that brand loyalty is low and a difference of N1, 000 can make a customer patronise a different hotel, particularly in Lagos where competition is intense.
“The smaller hotel brands will be the hardest hit. Bigger international brands can easily take this in. Besides, customers of the big hotel chains make bookings online, care for upper-middle-class consumers and the new consumption tax will be factored in,” said Victor Edosomwan, founder and the chief executive officer of Vicwan Limited, hospitality and lifestyle consulting firm.
BusinessDay’s report of May 31, 2018, said that November to December 2017 was the best for a long time for the hospitality sector in terms of occupancy rate and revenue generation but the sector had posted an impressive first-quarter result for 2018.
Despite marginal growth in occupancy rates, Nigerian hoteliers are battling with the challenges of doing business in Nigeria, especially with regards to multiple taxations that some of the operators have decried for gulping as much as 10 percent of profit.
At present, there are over 24 different taxes and levies paid to the three tiers of government across the country amid high cost of daily operations. Some of the taxes include company tax, consumption tax, value-added tax, hotel license, personal income tax, parking permits, wastewater request, land use charge, radio and TV permit.
But the Court in its ruling “issued an injunction restraining the FIRS from imposing a value-added tax on goods and services consumed in hotels, restaurants and events centres in Lagos State,” a KPMG Nigeria Tax-Newsletters of October 03 said. “The injunction was issued on the premise that Lagos State is the appropriate authority, under the law, to assess such goods and services to consumption tax.”
People familiar with the hospitality industry have also said that a lack of basic infrastructure is making the cost of operations spike. “The hotels have to provide their own power and evacuate sewage on their own; these should be provided by the government,” Edosomwan said.
The implication of this latest court ruling would be that goods and services consumed within a State would be liable to a State Consumption Tax Law whereas any inter-State consumption or sales should be liable to value-added tax.
