Real Estate Firm Successfully Appeals against FIRS VAT Regime
Bennett Oghifo
Areal estate firm, Ess-ay Holdings Limited, has successfully appealed against an order of Value Added Tax (VAT) re-assessment by the Federal Inland Revenue Service (FIRS).
The Judgement in the Tax Appeal Tribunal in the Lagos Zone, holden at Lagos Appeal No: TAT/LZ/VAT/029/2019 between: Ess-Ay Holdings Limited and Federal Inland Revenue Service was held by the Chairman, O.M. Lassise-Phillips, Esq; Hon. Commissioners, M. A. C. Dike; Mrs. T. Akibayo; and R.A Quadri. Temitope Adewale Esq appeared for the Appellant (Ess-ay Holdings Limited) and Folashade Kalesaro for the Respondent (FIRS).
The judgement dated 10th September 2020 reads, “This is an Appeal by the Appellant against the decision of the Respondent in respect of the Appellant’s alleged tax liability for the 2014-2016 accounting years as set out in the Respondent’s VAT ReAssessment Notice dated July 9, 2019 (the “VAT Re-Assessment”).
“In the final analysis, the Tribunal finds merit in this Appeal, which is accordingly upheld. The assessed VAT liability of the Appellant together with the interest and penalties is hereby set aside,” said the judgement, which Certified True Copy, dated 11/09/2020, was sighted by THISDAY.
Background stated in the judgement
The Appellant invests and engages in the development of real properties which are rented or leased to tenants. The said properties are put to both commercial and residential purposes. On the other hand, the Respondent is an agency of the Federal Government. It is responsible for the assessment, collection and general administration of federal taxes on behalf of the Federal Government of Nigeria including the Value Added Tax Act (VAT Act).
Following a tax audit, the Respondent by a letter dated October 19, 2018 informed the Appellant of its intention to assess the Appellant to additional taxes particularly with respect to Value Added Tax (VAT) on incomes derived from letting out its properties for the 2014 -2016 accounting years. As a result of this letter, a series of meetings was held between the parties to reconcile the issues and correspondences were exchanged. The bundle of documents evidencing the correspondences and meetings is before this Tribunal.
Ostensibly, these meetings did not yield any positive outcome because by July 9, 2018, the Appellant was served amongst others, the Respondent’s VAT Assessment Notice in relation to v AT on incomes derived from its commercial tenants. The Appellant objected to the said VAT Assessment Notice via its objection letter dated July 15, 2019.
On the 26th of July 2019, the Respondent served its Notice of Refusal to Amend (NORA) dated July 22, 2019 on the Appellant. Dissatisfied with the Respondent’s action, the Appellant filed this Appeal, the subject-matter of this Judgment before the Tax Appeal Tribunal on August 22. 2019.The Appellan1 filed three (3) Grounds of Appeal to wit:
Ground 1
The VAT assessment in the sum of NS4. 263. 899 .SO (Fiftyfour Million, Two Hundred and Sixty-Three Thousand, Eighth Hundred and Ninety-Nine Neira. Fifty Kobo) as Value Added Tax (“VAT”) on rental income earned by the Appellant in the period 2014 to 2016 thereby unlawfully subjecting the rental income of the Appellant to VAT contrary to the provisions of the Value Added Tax Act as amended and currently compiled as Cap Vl, Laws of the Federation of Nigeria 2004.
Particulars of error
l. Section 2 of the VAT Act provides that VAT shall be charged and payable on the supply of goods and services (referred to as taxable goods and services) other than those goods and services listed in the First Schedule to the VAT Act.
2. VAT is not a tax on returns on investments such as rent dividends and interests.
3. Rental incomes are not derived from a supply of goods and services.
4. Rental income cannot be subjected to VAT solely on the premise that it is not exempt from VAT under the First Schedule to the VAT Act.
Ground 2
The Respondent erred in law when it issued a Notice of Refusal to Amend v AT Additional Assessments dated 22 July 2019 (“NORA”) where it stated that “income from commercial rent is VAT-able income and the one from residential has administrative exemption.”
Particulars of error
l. There are no provisions in the VAT Act which designate rental income as a taxable good or service under the VAT Act in the circumstance that “rent” is neither a good nor service.