The Lagos State Internal Revenue Service (LIRS) recently issued the Hotel Occupancy and Restaurant Consumption (Fiscalisation) Regulation (the Regulation), in an exercise of its powers under Section 9 of the Hotel Occupancy and Restaurant Consumption Law (consumption tax law).
The Regulation, which was gazetted on 10 January 2018, provides for the automated monitoring of consumption tax on all sales transactions carried on by hotels, restaurants and event centres within Lagos State. Although the Regulation does not contain any commencement date, it would be deemed to have commenced on the day it was gazetted. However, the LIRS is expected to issue operational guidelines on the automation process.
The Regulation is intended to introduce an electronic measure that will grant the LIRS real-time oversight and access to all sales transactions covered by the consumption tax law. It applies to all collecting agents, that is, persons owning, managing or controlling any business or supplying chargeable goods or services in hotels, hotel facilities, event centres and restaurants within Lagos State.
Collecting agents are obligated to use an Electronic Fiscal Device to record all taxable transactions, generate receipts/invoices and transmit the data to a LIRS controlled central system.
The Lagos State Government enacted the consumption tax law, which imposes a tax at 5% on purchase of goods and services in hotels, hotel facilities, event centres and restaurants, in 2009. Although the Federal Government contested the constitutionality of the law, the Supreme Court declared the consumption tax law constitutional and upheld the powers of the Lagos State Government in 2013.
The Supreme Court held that the Lagos State House of Assembly had the legislative power to enact the law since the listed items are not within the exclusive or concurrent legislative lists in the Constitution.
Even though the consumption tax law does not specifically empower the LIRS to invade into the internal control systems of collecting agents, the introduction of the automated system will require an installation of a fiscalization software and hardware on devices owned by collecting agents to monitor compliance. Thus, this move may raise concerns as to whether the administrative powers of the tax authorities extend to invasive monitoring of the internal control systems of the collecting agents.
It is expected that the Federal Inland Revenue Service and other relevant tax authorities would start considering similar automation of tax collection and monitoring to increase compliance, especially in transaction taxes. Therefore, companies and individuals will be required to take the payment of the consumption tax into consideration in dealing with the collecting agents.