*Orders Refund Of N16m To The Company
*Declares Taxations And Levying Of Companies Registered In Freezone Areas As Unlawful And Illegal
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In a recent judgment delivered on Friday, the 23rd day of June 2023, the Federal High Court in Abuja ruled in favor of Centenary City Freezone Company and Prime Properties FZE in a case against the Federal Inland Revenue Service (FIRS) and Standard Chartered Bank of Nigeria Limited. The court’s decision centered around the question of whether the plaintiffs were liable to pay taxes despite their registration and operation within the Centenary Economic City Free Zone, which grants them exemption from all federal taxes and levies.
The plaintiffs initiated the legal action by filing an Originating Summons, citing Sections 8, 10, and 12 of the Nigerian Export Processing Zone Authority Act, along with other legal provisions. They sought a declaration that they were exempt from paying taxes, as well as a refund of withheld taxes and the payment of interest on the wrongfully deducted amounts. The plaintiffs through their Counsel, Sir Nkemakolam Okoro, Esq, argued that the taxes imposed by the defendants were illegal, unconstitutional, and contrary to the provisions of the Nigeria Export Processing Zones Act.
In response, the defendants filed counter affidavits and presented their legal arguments. However, the court carefully examined the relevant statutes, including the Nigerian Export Processing Zones Act, and considered the facts and circumstances of the case. Justice D. U. Okorowo, presiding over the case, concluded that subjecting the plaintiffs’ foreign direct investment to value-added tax (VAT) and withholding tax would be oppressive and contrary to the intent of the legislation.
The court noted that the Export Processing Zone Act is a protective statute designed to encourage foreign direct investment and create foreign direct earnings for Nigeria. Justice Okorowo emphasized the need to interpret the provisions of the Act in a manner that aligns with its objectives and safeguards the interests of foreign investors.
Furthermore, the court referred to a circular issued by the Federal Inland Revenue Service in 2006, which explicitly stated that companies registered and operating within Free Trade Zones were exempt from withholding taxes. This circular supported the plaintiffs’ position that they were indeed exempt from the taxes imposed by the defendants.
The court upon consideration of the issues and the arguments of Counsel, resolved the issues raised by the plaintiffs in their Originating Summons and declared that the plaintiffs were exempted from the payment of all taxes, levies, and rates due to their registration and operation within the Centenary Economic City Free Zone. The judgment was based on the provisions of Section 8 of the Nigeria Export Processing Zones Act.
Furthermore, the court deemed the conduct of the defendants, the Federal Inland Revenue Service (FIRS) and Standard Chartered Bank of Nigeria Limited, as illegal, unlawful, and void. The defendants had charged and deducted a total sum of Fourteen Million, Six Hundred and Sixteen Thousand, Two Hundred and Eight-Nine Naira, Five Kobo (N14, 616, 289: 05) as withholding tax and Two Million One Hundred and Sixty-Four Thousand, Six Hundred and Fifty-Nine Naira (N2, 164, 659: 00) as value-added tax (VAT) from the plaintiffs’ accounts between 2015 and 2018.
Consequently, the court ordered the 1st Defendant, the FIRS, to immediately refund the wrongfully deducted amounts to the plaintiffs. Additionally, the 1st Defendant was directed to pay the 2nd Plaintiff a sum of Five Million, Thirty-Four Thousand, Two Hundred and Eighty-Four Naira, Forty-Two Kobo (N5, 034, 284: 00) as 10% interest on the wrongfully deducted VAT between 2015 and 2020. The court also mandated the 1st Defendant to pay the 2nd Plaintiff 10% interest on the sum of Fourteen Million, Six Hundred and Sixteen Thousand, Two Hundred and Eight-Nine Naira, Five Kobo (N14, 616, 289: 05) deducted as withholding tax and the sum of Two Million One Hundred and Sixty-Four Thousand, Six Hundred and Fifty-Nine Naira (N2, 164, 659: 00) deducted as VAT from 2020 until the judgment was delivered.
Furthermore, the court issued an injunction restraining the defendants from further charging or deducting any tax, levies, or dues from the plaintiffs’ accounts in contravention of the provisions of Section 8 of the Nigeria Export Processing Zones Act. The court also ordered the defendants to pay exemplary damages in the amount of N5, 000, 000.00 (Five Million Naira) jointly and severally in favor of the plaintiffs. The defendants were further directed to pay the plaintiffs’ legal costs and interest on the entire judgment sum at a rate of 10% until the amount is fully liquidated..
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