TAT’s Decisions on VAT on Real Property Leases – Some Clarifications

As you are aware, on Tuesday, 10th September 2020, the Tax Appeal Tribunal sitting in Lagos State, Nigeria (TAT) delivered Judgement in  Appeal No. TAT/LZ/VAT/029/2019: Ess-Ay Holdings Limited v. Federal Inland Revenue Service (FIRS) (available at: https://taxaide.com.ng/wp-content/uploads/2020/09/Judgement-Ess-ay-Holdings-Ltd-v.-FIRS.pdf)

Issues to be determined:

  1. Whether rental income from real property is subject to Value Added Tax (VAT) under Nigeria’s VAT Act, 1993 (as last amended in 2007)?;
  2. Whether the provisions of the FIRS Information Circular No. 9701 dated 1st January 1997 which exempted only rents from residential properties (and not commercial properties) is valid?

On the first issue, the TAT held that the lease of real property is neither a supply of good nor service and accordingly, the rent payable for such transaction cannot be subject to VAT. The TAT largely relied on the decision of Nigeria’s Federal High Court in CNOOC Exploration and Production Nigeria Ltd v. Attorney General of the Federation (available at: https://taxaide.com.ng/wp-content/uploads/2020/09/CNOOC-v.-AG-Federation-2011-4TLRN-pg-185.pdf)

On the second issue, the TAT held that FIRS’ Information Circulars have no force of law and cannot subject to VAT, a transaction that the VAT Act has not subjected to VAT. The FIRS’ Information Circular in the Appeal was accordingly held to be void for attempting to subject leases of commercial real estate to VAT. The TAT largely relied on the decision of Nigeria’s Court of Appeal in Federal Board of Inland Revenue v. Halliburton (WA) Ltd (Available at: https://taxaide.com.ng/wp-content/uploads/2020/09/FBIR-vs-Halliburton.pdf)

In a similar matter, on the 9th September 2020, the TAT in the South-South Zone sitting in Benin in the suit NO. TAT/SSZ/001/2019 between Chief J.W Ellah, Sons & Company Limited and Federal Inland Revenue Service.(Available at: https://taxaide.com.ng/wp-content/uploads/2020/09/Ellah-v.-FIRS.pdf). Decided that a commercial building where a charge, fee, rent or any consideration is payable is subject to VAT.

The issue was on whether rent on residential, commercial building or premises are “Vatable” or not. The TAT relied  on its decision in the case of Federal Board of Inland Revenue V Ibile Holding (2006) and also on its view that the definition of “supply of goods” include letting out of goods on hire or leasing. The Tribunal did not consider whether the lease or hire must be in relation to goods, nor did the Tribunal consider whether the rights conferred under a lease of premises amounted to goods or not as in the case of Ess-Ay Holdings Limited v. Federal Inland Revenue Service (FIRS)

However, the Finance Act 2019 has put the case to rest by its express exclusion of interest in land in the definition of goods  ”any intangible product, assets or property over which a person has ownership or interest, or from which he derives benefits, and which can be transferred from one person to another excluding interest in land”.

Going by the express exclusion of interest in land by the Finance Act, leases/rent of real property is NOT subject to VAT.

Taxaide® is proud to have advised Ess-Ay Holdings Limited on the issues in the Appeal.