Oct 21, 2015


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The World Travel and Tourism Council, WTTC, has projected that the travel and tourism industry in Nigeria would contribute 1.6 per cent directly to the Gross Domestic Product of the country by 2024, which represents N1.366 billion. The Council also projected that the travel and tourism industry would support direct employment to the tune of 1,194,000 employees in the next decade, which represents 1.4 per cent total employment in the country.

In the wake of the fall of oil prices which is seriously hitting the country’s financial muscle, the need to diversify the country’s income cannot be understated. The enforcementand strict compliance of existing tax laws to generate larger revenue also cannot be undermined; for example the Iranian government is earning more from tax than oil as a result of its policy to shift its traditional reliance on oil money to taxes in the face of plummeting oil prices, thus the possibility of earning from taxes in Nigeria is important.

The consumption tax lawis anexisting law which needs to be explored , especially for a commercial state like Lagos which has an average of 3,000 hotels, one can safely assume that such a number is a marginal field, unfortunately this has not been thoroughly explored by the government.

Lagos State Hotel Licensing Law
Given the enormous size and even bigger potential of the hospitality and tourism industry, it is clear why the desire to regulate the industry can be seen as a big deal. For a long time the industry has been regulated solely by the Nigerian Tourism Development Corporation (“NTDC”). Lagos State challenged the status quo by introducing laws to regulate the industry in theState leading to the debate on the constitutionality of the Lagos State Hotel Licensing Law 2003 (and its amendment) and the Hotel Occupancy and Restaurant Consumption Law 2009.

The Hotel Licensing Law and the 2010 amendment established the Lagos State Hotel Licensing Authority (“LSHLA”) and made other provisions for the licensing of hotels. It further empowered Lagos State to make laws to regulate, make standardsand grade tourism operations which was previously under the exclusive preserve of the NTDC.

In the exercise of its powers to license and regulate hotels, the Lagos State House of Assembly enacted the Hotel Occupancy and Restaurant Consumption Law. The law imposes a 5% tax on consumption of goods and services in hotels, hotel facilities, events centres and restaurants.

What the court thinks?
The federal government (before the Supreme Court) challenged the right of Lagos State to make laws on tourism specifically where the National Assembly had already legislated on the same issue through the NTDC Act.

The apex court dismissed the federal government’s suit and delivered its judgment in favour of Lagos state. It was the view of the court that the NTDC Act went beyond its powers as stated in the Exclusive Legislative List of the Constitution which is to regulate “tourist traffic”. This effectively challenged the constitutionality of the NTDC’s powers to unilaterally regulate and control of hotels and tourism in Nigeria. The court therefore validated the respective laws of Lagos State.

However, the judgment did not address the issue of the imposition of tax and whether or not Lagos State has the constitutional right to impose consumption tax on hotels, restaurants and event centres.

Who is liable to consumption tax?
Section 1 a-b of the Hotel Occupancy and Restaurant Consumption Law 2009 provides that the tax is imposed on any consumer who pays for the use or possession of any hotel, hotel facility or event centres or purchases goods or services in any restaurant whether or not located within a hotel in Lagos state.
The operators are therefore mere agents of the government for the purpose of tax remittance. The Act further provides for penalties and distraining powers on defaulting agents.

Compliance Issues
According to the former Commissioner for Tourism and Inter-governmental Relations, Mr. Disun Holloway in early 2015 stated that no fewer than 1000 hotels operate in Lagos without obtaining license from the Lagos State Licensing Authority.

He further stated that 1,328 hotels, event centres, bars and restaurants are yet to comply with the law as opposed to the 1,162 that have complied. This figure which is rising daily represents more than 60 percent of tourism establishments domiciled within Lagos.

It is pertinent to note however, that most hotel operators have expressed complaints about multiple taxes and charges imposed on them such as consumption tax, value added tax, company income tax, withholding tax, health certificate, and waste operation permit.

The Way Forward
·         The government needs an aggressive approach towards registration of members with theThe Hotel and Personal Services Employers Association of Nigeria (HOPESEA) to capture more operators into the tax net.

·         Adequate and sufficient sensitization to show that operators are mere government agents.

·         Tax credits and awards for compliant operators.

·         Innovation of technology/software that would automatically deduct  tax due from the restaurant money machines accounts, which will aid the tax authorities in assessment.

·         A presumptive income tax system should be introduced for operators that do not comply with the systems in place.



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