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Thursday February 1 2018/ 04:20PM/Deloitte
Analysis
of Gazprom: As earlier indicated, the conclusion reached in Gazprom was
premised on the provision of Section 10 of VATA regarding registration by a
non-resident. Understandably, Section 10(2) of VATA mandates a non-resident
that “carries on business in Nigeria” to register for VAT. However, this
requirement falls under the administrative provision of VATA. This section, by
no stretch of the imagination, imposes VAT on transactions.
The
fact that Section 31 of VATA makes it an offence for an unregistered person to
issue a VAT invoice does not change this analysis. This is more so as Section
31 goes further to empower “any one authorized” to issue a VAT invoice. Thus,
where a non-resident does not “carry on business in Nigeria” and consequently
not obliged to register for VAT, such non-resident is still obliged to charge
VAT in line with Section 15 of VATA, where the person enters into transactions
subject to Nigerian VAT.
Under
Section 15 of VATA, VAT invoice may be issued by a “taxable person” (any
person) that has made a “supply” (any transaction for a consideration).
Therefore, it is arguable that a non-resident is “authorized” to issue a VAT
invoice irrespective of the registration requirement, provided it satisfies the
other condition for imposition of VAT.
Another
consideration of the Abuja TAT in reaching its decision in Gazprom was that VAT
is not due unless and until it is charged, based on Section 10(2). While this
appears to be valid argument, it is not fool proof in view of the provision of
Section 5(1)(a) of VATA.
According
to Section 5(1) (a), the value of taxable goods (on which VAT is charged),
shall be “deemed to be the amount which with the addition of the tax chargeable
is equal to the consideration”. In essence, where VAT is not included
separately, it is presumed that the contract sum is inclusive of VAT.
Therefore, irrespective of the issuance of VAT invoice, the Nigerian party is
obliged to deduct VAT and remit appropriately.
Analysis
of Vodacom: Lagos TAT, in Vodacom case on the other hand, relied on the
charging provision, which imposes VAT on the underlying transaction. It
distinguished (in my opinion, rightly so) Section 10 (an administrative
provision) from Section 2 (a charging provision) and concluded that supply of bandwidth
by a company outside Nigeria (to a Nigerian company) falls within the ambit of
VATA. The Tribunal held that the destination principle supported the provision
of the VATA.
While
the decision addressed transactions chargeable to VAT, it failed to address a
critical issue raised in Gazprom case on whether non-issuance of a VAT invoice
is a condition precedent to party is obliged to deduct VAT and remit
appropriately. Analysis of Vodacom: Lagos TAT, in Vodacom case on the other
hand, relied on the charging provision, which imposes VAT on the underlying
transaction. It distinguished (in my opinion, rightly so) Section 10 (an
administrative provision) from Section 2 (a charging provision) and concluded
that supply of bandwidth by a company outside Nigeria (to a Nigerian company)
falls within the ambit of VATA. The Tribunal held that the destination
principle supported the provision of the VATA. While the decision addressed
transactions chargeable to VAT, it failed to address a critical issue raised in
Gazprom case on whether non-issuance of a VAT invoice is a condition precedent
to payment/remittance of VAT.
Overall,
until a court of higher jurisdiction affirms either decision, both are
unfortunately valid under our jurisdiction. It thus leaves taxpayers in a
dilemma on the path to take. However, this situation could have been avoided if
our law was unambiguous.
Nonetheless,
tax authorities may rely on some practical approaches to resolve attendant
issues. These includes, generating a generic Tax Identification Number (TIN),
where TIN is considered absolutely necessary for the issuance of a valid VAT
invoice. FIRS could allocate a generic TIN to NRCs that do not have tax
presence, warranting tax registration, in Nigeria. This will enable such NRCs
quote the generic TIN when issuing a VAT invoice which in turn mandates
remittance. This would be similar to generic TIN created to ensure bulk
remittance of withholding tax (by the payer to avoid sanctions) where the
recipient has no TIN
In
the long run, an amendment to VATA is required, covering amongst others,
inclusion of “imported service” within its ambit. The conclusion in the cases
might have been different if “imported service” were included in Section 2-5 of
VATA. This is because the definition envisaged that services will only be
considered “imported” with attendant taxes where a nonresident renders the
service in Nigeria. In the same vein, the link between the administrative and
charging provisions of VATA may be clearly set out to determine the import of
each provision.
The
above and many others should be given due consideration when implementing (with
attendant amendments to the laws) the National Tax Policy which identifies the
promotion of indirect tax as one of its core focus.
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