THE RIVERS STATE HIGH COURT REAFFIRMS THE TAX-EXEMPT STATUS OF ONNE OIL AND GAS FREE ZONE ENTERPRISES BASED ON THE EXISTING LEGISLATION

In a decision delivered on May 20, 2025, the Rivers State High Court reaffirmed the statutory tax exemptions granted to approved enterprises operating exclusively within the Onne Oil and Gas Free Zone (OOGFZ). In West Atlantic Shipyard Ltd v. Attorney-General of Rivers State & Rivers State Board of Internal Revenue Service (Suit No. PHC/266/CS/2024), the Court held that Free Zone enterprises are shielded from all forms of taxation—federal, state, and local—except personal income tax.

This judgment aligns with similar precedents in Nigeria’s Free Zone jurisprudence, reasserting the legal autonomy and fiscal privileges granted to export-oriented businesses operating under the Oil and Gas Export Free Zone Act (OGEFZA). The ruling has profound implications for regulatory compliance, tax planning, and investor confidence in Nigeria’s Free Zone regime.

However, with the enactment of the Nigerian Tax Act, 2025, certain amendments have been made to the tax exemption status of Free Zone entities. The new law, unlike the current regime, has made the “total exemption status” of these entities conditional, subject to certain requirements. The commencement date for the new Act is 1st January 2026.

Executive Summary of the Judgment

The High Court of Rivers State delivered a ruling in favor of West Atlantic Shipyard Ltd, a registered approved enterprise operating solely within the OOGFZ. The court’s key pronouncements are as follows:

• Dismissal of Preliminary Objection: The court rejected the Rivers State Board of Internal Revenue Service’s (RSBIRS) preliminary objection, which challenged the court’s jurisdiction on the grounds that the RSBIRS, named as “Rivers State Internal Revenue Service,” is not a juristic person. The court held that this was a mere misnomer, not fatal to the proceedings.
• Tax Exemption Upheld: Enterprises operating exclusively within the OOGFZ are exempt from all federal, state, and local government taxes, levies, rates, and duties under Section 8 of the Oil and Gas Export Free Zone Act (OGEFZA), Cap O5, Laws of the Federation of Nigeria 2004 (as amended), except for personal income tax.
• Ultra Vires Action by RSBIRS: The RSBIRS’s demand for a N4,000,000 Registration/Renewal of Business Premises Levy was declared unlawful, as it contravened the OGEFZA’s exemptions and exceeded the RSBIRS’s legal authority.
• Perpetual Injunction Granted: The court issued a perpetual injunction restraining the defendants—RSBIRS and the Attorney-General of Rivers State—from imposing, assessing, collecting, or enforcing any taxes, levies, rates, or duties against the claimant, including the N4,000,000 levy demanded via a letter dated September 10, 2021.
• Rejection of Alternative Claim: The court dismissed the claimant’s alternative reliance on the Taxes and Levies (Approved List for Collection) Act, Cap T2, as it was previously declared unconstitutional by the Court of Appeal in Uyo Local Government v. Akwa Ibom State Government & Anor (2020) LPELR-49691 (CA).

This judgment strengthens the fiscal incentives for free zone enterprises and sets a robust precedent for resisting unlawful state tax demands.

Background of the Case

West Atlantic Shipyard Ltd, a licensed enterprise operating exclusively within the OOGFZ, initiated this suit via an Originating Summons dated January 25, 2024, and filed on January 30, 2024. The claimant sought judicial determination on two critical questions:

• Whether, under Section 8 of the OGEFZA, its status as an approved enterprise within the OOGFZ entitles it to exemption from all taxes, levies, rates, and duties demanded by the defendants.
• Whether the RSBIRS acted ultra vires by imposing a N4,000,000 levy for Registration/Renewal of Business Premises under the Registration of Business Places Law, Cap 111, Vol. 5, Laws of Rivers State, Nigeria 1999, contrary to federal law.

The claimant argued that the OGEFZA, a federal statute, overrides conflicting state legislation, and the RSBIRS’s demand was unlawful. The defendants—the Attorney-General of Rivers State and the RSBIRS—countered that:

• The OGEFZA’s exemptions could not extend to state levies, as such matters fall outside the federal government’s legislative competence under Items 58 (stamp duties) and 59 (taxation of incomes, profits, and capital gains) of the 1999 Constitution (as amended).
• The claimant’s reliance on the Taxes and Levies Act was invalid due to its unconstitutionality.

The RSBIRS also raised a preliminary objection, challenging the court’s jurisdiction on the grounds that it was not a juristic person under the name “Rivers State Internal Revenue Service.”

Preliminary Objection: Juristic Personality and Misnomer

Issue Raised: The RSBIRS, named as the second defendant, argued that it was not a juristic person under the name “Rivers State Internal Revenue Service,” citing Sections 87(1) and 88(1)(a) and (b) of the Personal Income Tax Act and Sections 1, 2(a) and (b), and 9(a), (b), and (c) of the Rivers State Board of Internal Revenue Law No. 12 of 2012. The RSBIRS contended that the court lacked jurisdiction to entertain the suit against a non-juristic entity.

Claimant’s Response: The claimant’s counsel argued that the naming error was a mere misnomer, not fatal to the case, as the RSBIRS is the operational arm of the juristic Rivers State Board of Internal Revenue, and no reasonable doubt existed as to the defendant’s identity.

Court’s Ruling: The court dismissed the preliminary objection, holding that:

• The issue of jurisdiction is a threshold matter, and a preliminary objection challenging competence is valid despite the abolition of demurrer under Order 24, Rule 4 of the High Court Rules (Okorocha v. PDP (2014) 7 NWLR (Pt. 1406) 275).
• The naming of the RSBIRS as “Rivers State Internal Revenue Service” constituted a misnomer, not a fatal defect. Citing Registered Trustees of the Airline Operators of Nigeria v. NAMA (2014) LPELR-22372 (SC) and APGA v. Ubah & Ors (2019) LPELR-48132 (SC), the court held that a misnomer does not vitiate proceedings when the parties are familiar with the entity and no reasonable doubt exists as to its identity.
• Sections 87(1) of the Personal Income Tax Act and Section 1(1) of the Rivers State Board of Internal Revenue Law designate the RSBIRS as the operational arm of the juristic Rivers State Board of Internal Revenue, ensuring clarity of identity.
• The presence of the Attorney-General, a juristic person representing the Rivers State Government, further ensured the case’s competence, as the state could be held liable for the RSBIRS’s actions (FGN & 2 Ors v. Shobu Nig. Ltd & Anor (2013) LPELR-21457 (CA)).

Implication: The court’s dismissal of the preliminary objection clarifies that technical naming errors do not undermine substantive claims, particularly when a juristic entity (e.g., the Attorney-General) is a co-defendant. This reinforces procedural fairness for free zone enterprises challenging state actions.

Decision on the Case

The court found the action meritorious and granted the following reliefs:

• Declaration of Exemption: The claimant, as a registered free zone enterprise operating exclusively within the OOGFZ, is exempt from all taxes, levies, rates, and duties demanded by the defendants under Section 8 of the OGEFZA.
• Declaration of Lack of Legal Standing: The defendants lack the legal authority to impose state taxes, levies, rates, or duties applicable to the customs territory on the claimant.
• Declaration on Unlawful Demand: The RSBIRS’s demand for a N4,000,000 Registration/Renewal of Business Premises Levy was unlawful, as it contravened the OGEFZA’s exemptions.
• Perpetual Injunction: The court restrained the defendants, their agents, officers, or privies from making further demands, assessing, imposing, collecting, or enforcing any taxes, levies, rates, or duties against the claimant, including the N4,000,000 levy.

The court adopted the claimant’s two issues for determination, rejecting the defendants’ reformulated issues as inappropriate in Originating Summons proceedings unless a counterclaim is filed (NJC & Ors v. Oladejana & Ors (2014) NSCC 447).

Merits of the Case: Substantive Analysis

The court addressed two substantive issues:

• Tax Exemptions Under OGEFZA:
  • Legal Framework: Section 8 of the OGEFZA and Regulation 5 of the 2019 Regulations exempt approved enterprises in the OOGFZ from all federal, state, and local government taxes, levies, rates, and duties, except personal income tax.
  • Federal Supremacy: The court held that the OGEFZA, enacted under Item 62 of the Exclusive Legislative List (trade and commerce, including export of commodities), prevails over conflicting state laws, such as the Registration of Business Places Law (O.S.I.E.C. v. A.C. (2010) 19 NWLR (Pt. 1226) 351).
  • Purpose of OGEFZA: The court emphasized that the OGEFZA is designed to shield free zone enterprises from government interference, promoting export trade. Allowing state levies would defeat this legislative intent (A.G. Federation v. A.G. Lagos State (2013) 10 NWLR (Pt. 1380) 317).
  • Constitutional Harmony: The court reconciled Items 58 and 59 (taxation powers) with Item 62, holding that the OGEFZA’s exemptions are consistent with the Constitution’s framework for export trade (Okorocha v. PDP (2014) 7 NWlr (Pt. 1406) 209).
• Ultra Vires Action by RSBIRS:
  • The court rejected the claimant’s reliance on the unconstitutional Taxes and Levies Act but held that the RSBIRS’s N4,000,000 levy demand was unlawful, as it violated the OGEFZA’s exemptions.
  • Section 10 of the OGEFZA deems a free zone license as registration of both the business and its premises, rendering state-imposed registration levies redundant and unlawful.

Strategic Implications for Free Zone Enterprises

This judgment is a transformative milestone for Nigeria’s free zone ecosystem, particularly for OOGFZ enterprises. Key implications include:

• Robust Tax Exemptions:
  • The ruling fortifies the exemption of OOGFZ enterprises from state and local taxes, levies, rates, and duties, reducing fiscal burdens and enhancing competitiveness.
  • This aligns with global free zone standards, where fiscal incentives drive investment in export-oriented sectors.

Strategic Implications for Free Zone Enterprises

This judgment is a transformative milestone for Nigeria’s free zone ecosystem, particularly for OOGFZ enterprises, offering profound strategic implications:

• Fortified Fiscal Privileges:
  • The ruling solidifies the exemption of OOGFZ enterprises from state and local taxes, levies, rates, and duties, except personal income tax, reducing operational costs and enhancing global competitiveness.
  • This aligns with international free zone standards, where fiscal incentives are pivotal to attracting foreign direct investment and promoting export-oriented industries.
• Curbing State Overreach:
  • The court’s declaration that state authorities lack legal standing to impose levies on free zone enterprises sets a powerful precedent, limiting state fiscal interventions in federally designated zones.
  • This reinforces the doctrine of federal supremacy in matters of trade and commerce under Item 62 of the 1999 Constitution, ensuring a predictable regulatory environment.
• Enhanced Investor Confidence:
  • By shielding free zone enterprises from unlawful tax demands, the judgment bolsters Nigeria’s attractiveness as a hub for export-oriented sectors, including oil and gas, logistics, manufacturing, and renewable energy.
  • Investors can operate with greater assurance of legal protection against extrajudicial enforcement actions, fostering long-term investment planning.
• Procedural Clarity:
  • The dismissal of the preliminary objection clarifies that technical naming errors do not undermine substantive claims, particularly when a juristic co-defendant (e.g., the Attorney-General) is involved. This enhances access to justice for free zone enterprises.
  • The ruling provides a clear legal framework for resisting state-imposed levies, provided businesses maintain exclusive operations within the OOGFZ.
• Litigation Precedent:
  • The judgment serves as a robust precedent for future disputes, empowering free zone enterprises to challenge unlawful tax demands through legal action.
  • It underscores the judiciary’s role in upholding federal incentives, aligning Nigeria with global best practices for free zone governance.
• Potential Challenges:
  • State tax authorities may explore alternative revenue strategies, necessitating vigilance by free zone enterprises to ensure compliance with OGEFZA requirements.
  • Businesses must proactively assert their exempt status to prevent protracted disputes.

Why This Judgment Matters

The West Atlantic Shipyard Ltd ruling is a paradigmatic milestone for Nigeria’s free zone ecosystem, reaffirming the inviolability of federal incentives designed to catalyze export-oriented businesses. By curbing state overreach, upholding federal supremacy, and clarifying procedural nuances, the court has forged a more predictable, investor-friendly environment, aligning Nigeria with global benchmarks for free zone governance. This judgment not only alleviates fiscal burdens but also elevates the strategic positioning of OOGFZ enterprises in critical sectors, including oil and gas, logistics, manufacturing, and renewable energy.

Changes in the Nigerian Tax Act

By the provisions of Section 60 and the Second Schedule of the Nigerian Tax Act, 2025, Companies in the Export Processing and Export Free Zone will continue to enjoy full tax exemption on their exports or output that goes into goods or services eventually exported or supplied to oil and gas companies.

However, a proportionate tax will apply to the entities if more than 25% of their sales are made to companies in the customs territory. And from 1st January 2028, the full profits of Free Zone entities will be subject to tax if they make any sales to the customs territory.

At Explorers Legal Practitioners, we are steadfastly committed to empowering our clients with cutting-edge legal and tax solutions. This ruling underscores the imperative of leveraging judicial precedents to shield your business from unlawful tax demands and optimize your operational framework. Our multidisciplinary team stands ready to navigate the complexities of Nigeria’s tax landscape with unparalleled expertise, ensuring your business thrives in this dynamic environment.

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