Thursday, February 1 2018/ 12:02PM/ Asiata
A. Agboluaje, Senior Manager, Deloitte
the last two years and within 7 months apart, two divisions of the Tax Appeal
Tribunal (TAT), in Abuja and Lagos, gave conflicting decisions on two cases
with similar facts. The underlying issue for consideration was the
applicability of Value Added Tax (VAT) is applicable on services rendered by a
non-resident1 to a Nigerian company.
Gazprom Oil & Gas Nig. Ltd (Gazprom) v Federal Inland Revenue Service
(FIRS), Abuja TAT held that a non-resident company (NRC), which rendered
service to a Nigerian company exclusively outside Nigeria was not obliged to
register for VAT pursuant to Section 10 of the Value Added Tax Act (VATA). The
NRC was therefore under no obligation to charge VAT on its invoice.
Consequently, Abuja TAT held that since VAT was not charged, the Nigerian
company had no obligation to deduct VAT as the provision of Section 10(2) of
VATA, which mandates deduction of VAT (from payment to a non-resident service
provider), was not triggered.
in Vodacom Business Nig. Ltd (Vodacom) v FIRS, TAT sitting in Lagos
relied on Section 2, the charging provision that imposes VAT on supply of goods
and services, in reaching its conclusion. Lagos TAT held that VAT applied to
supply of bandwidth by an offshore entity with no presence in Nigeria. Thus,
the Nigerian recipient of the service was obliged to deduct and remit VAT to
the tax authorities in the currency of the transaction.
representatives of Vodacom drew Lagos TAT’s attention to the decision in
Gazprom to persuade the Tribunal to reach the same conclusion. Lagos TAT
however stated that the Gazprom case was held in error (per incuriam) as
Section 10 (which formed the basis of Gazprom’s decision) is an administrative
provision which does not impose VAT.
conflicting decisions show the inadequacies and ambiguities in VATA regarding
the taxation of “imported service”. In this regard, it becomes imperative to
examine the legislative provisions critically.
substantive tax laws have three major ingredients:
• Charging provisions – these are provisions that impose tax
• Ambit – this relates to eligible persons and transactions
Administrative provisions – these are provisions relating to collection and
dispute resolution procedures VATA, which imposes a consumption tax on end
user, is not any different from most tax laws in this respect.
relevant ingredients of VATA are further assessed below:
i. Charging provisions (is
there a tax?): VATA, via its charging provision
(Section 1) imposes VAT.
ii. Ambit (on whom/ what does
the tax apply?): Sections 2 to 5 of VATA impose the
tax on “supply of all goods and service” except those set out its Third
Schedule. The exemptions are quite restrictive, listing out specific goods and
iii. Administrative provisions
(how is the tax collected?): The administrative
provisions of VATA set out the modalities for giving effect to the “charging
provisions” and the “ambit”. Essentially, the administrative provisions will
only be triggered if the person/ transaction falls within the ambit of the law.
Where the person or underlying transaction does not fall within the ambit of
the law, the administrative requirements are superfluous.
administrative provisions cover registration, invoicing, collection and remittance
requirements etc. Sections under this head in VATA include Section 10.
wide charging provision/ ambit and restrictive nature of the exceptions under
VATA connote that Nigerian VAT, if interpreted strictly, applies to sale of all
goods and services. If given this strict interpretation, Nigerian VAT will
apply regardless of whether the sale is carried out within or outside Nigeria
or between Nigerians and non-Nigerians, provided they do not fall within the
listed exceptions in the Third Schedule.
strict interpretation appears absurd and would most likely be impracticable in
view of the territorial nature of tax laws. The most likely interpretation
would be that VAT applies on supply of goods and services which falls under
territorial powers of the Nigerian tax authority. This would include
transactions with Nigerian supplier or recipient (subject to relevant
exceptions). Considering that tax is levied on the end user, it is arguable
that Nigerian VAT applies where the person that enjoys the service (obliged to
bear the responsibility) is resident in Nigeria.
technical terms, this principle could be subsumed under the ‘destination
principle’, which stipulates that VAT should be charged where the person
enjoying the benefit resides. Although, not expressly stated in our laws, the
destination principle is one of the globally acceptable bases of charging VAT.
above principle therefore, raises the underpinning issue of whether Nigerians
are bound to pay VAT on services rendered to them by non-Nigerians, outside
Nigeria. This question becomes more pertinent because by implication (based on
the provisions of Sections 5 and 6, which describe how to ascertain underlying
value of goods), VAT applies to imported goods. On the other hand, ‘‘imported
services’’ are not expressly listed as falling within the ambit of VATA. This
is because other than Nigeria the definition of “imported service” (“service
rendered in Nigeria by a non-resident person to a person inside Nigeria”),
there is no other reference to the term within the entire legislation. In
effect, it is arguable that the definition is inconsequential and does not
serve any purpose in VATA.
Atinuke Agboluaje is a Senior Manager Tax & Regulatory Services at Deloitte
& Touche and can be reached via firstname.lastname@example.org
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