Tax Appeal Tribunal Delivers Conflicting Decisions on Whether VAT is Chargeable on Property Leases


Saturday, September 19, 2020 / 07:20 AM / By PwC Nigeria / Header Image Credit: Dozilla

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In Chief J.W. Ellah & Sons Company Ltd v FIRS and Essay Holdings Ltd v. FIRS decided by the Tax Appeal Tribunal (TAT) in Benin and Lagos Zones respectively, the TAT delivered conflicting decisions on whether commercial leases are subject to Value Added Tax (VAT). Both zones also adopted different approaches to the role of Information Circulars in interpreting statute.

The appeals were contested under the VAT Act, LFN 2004 (VAT Act, 2004).

Prior to the amendments by the Finance Act 2019 (FA 2019), there was no clear definition of goods and services which further added to the controversy regarding the VAT status of property leases.

The Relevant Legislation

According to the VAT Act, VAT is imposed on goods and services. The First Schedule to the Act contains a list of exempt goods and services. Leases are not contained on the exemption list.

To clarify certain provisions of the VAT Act particularly in relation to exemptions, FIRS issued Information Circular 9701 in 1997 stating that residential accommodation was exempt while commercial leases were taxable.

The Appeals

The facts of both appeals are similar. In both cases, the FIRS assessed the taxpayers to VAT which, according to FIRS, should have been collected by the taxpayers and remitted to FIRS on rents received on commercial leases. FIRS' position is that commercial leases are not listed as exempt under the First Schedule to the VAT Act. In addition, commercial leases / accommodation are not exempt under Information Circular 9701. The taxpayers' views were that leases are neither goods nor services under the VAT Act, 2004, so should not be subject to VAT.

In Essay, the taxpayer argued that leases are an incorporeal right. The taxpayer relied on CNOOC v AGF where the Federal High Court decided that an interest in an oil mining lease was not subject to VAT as it was neither a good nor a service.

The Decision

In Ellah, delivered on 9 September 2020, the TAT held that commercial leases were subject to VAT. In arriving at its decision, the TAT relied on the definition of "Supply of Goods" in the VAT Act particularly on the phrase the letting out of taxable goods on hire or leasing of taxable goods. The TAT also relied on the Information Circular 9701 holding that it would be inconsistent of the taxpayer to accept the exemption on residential accommodation under the Circular but not accept that commercial leases were not exempt as it was not included in the Circular.

However, in Essay delivered on 10 September 2020, the TAT held that property leases are not goods. They are incorporeal rights which are not subject to VAT. In arriving at its decision, the TAT relied on the definition of goods in the UK Sales of Goods Acts and Lagos State Sales of Goods Law that goods must be severable from land. The TAT also relied on the decisions in CNOOC v. AGF and Momotato v UACN to hold that interest in land were neither goods nor services.

In Essay, the TAT held that the Information Circular 9701 does not amount to subsidiary legislation so it cannot amend the VAT Act. However, such circulars are useful tools for determining the mind of tax authorities to help taxpayers plan their affairs.


It does not help that the TAT gives conflicting decisions. Furthermore, since the TAT is not bound by the decisions of another Zone, parties can rely on either of the two decision that supports their position. Therefore, this does not resolve the conflict which must now be resolved on further appeals.

The FA 2019 has now defined goods to include intangible property over which a person has ownership rights which confer benefits and can be transferred excluding interest in land. This implies that incorporeal rights may now be subject to VAT except rights in land. It can however be argued that a lease real property is an interest in land and therefore, the FA 2019 may not have resolved the contention around whether VAT is applicable on property leases whether commercial or residential.

Apart from this, the FIRS has in recent times demanded VAT on sale of buildings on the basis that it is not land. If it is accepted that land includes anything that is fixed and not severable from the land (in line with case laws and the Interpretation Act), then sale of buildings should not be subject to VAT.

Taxpayers interested in this case may need to wait and monitor the outcome if the judgment is appealed before changing their current practices or considering any steps regarding past treatments.

In Essay, the TAT quoting the decision in HOMAL v FIRS, also raised the question of the validity of Ministerial power in section 38 of the VAT Act to amend the VAT Act.

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