Tax & Business Matters - Nigeria

No VAT on the rent of buildings even before recent tax law amendments, says the TAT

NGX Real Estate Limited (the “Company”) is a Nigerian real estate company in the business of acquiring, leasing, hiring, or part-exchanging real property. The Company earned rental income from real properties in 2020 and did not pay Value Added Tax (VAT) on the income. The Federal Inland Revenue Service (FIRS) audited the Company’s 2020 financial records and issued a tax assessment of N36,185,564.25 for an unremitted VAT. 

Issues considered include:

Whether or not the FIRS was right to have imposed VAT on the Company’s activities. The Company argued that the definition of “goods” in the VAT Act as amended by the Finance Act (FA) 2019, excluded the transfer of interest in land, and therefore VAT should not apply on the sale of buildings, being extensions of land. However, the FIRS contended that “land” and “buildings” were separate concepts and the exemption available to land did not extend to buildings. The FIRS argued that this was the reason that the exemption was expanded in the following year by the FA 2020 to cover both land and buildings.

The TAT’s ruling has clarified that VAT was exempt on the sale of interest in land and buildings in 2020, following the FA 2019 amendment. Further amendments by FA 2020 in the subsequent year have removed ambiguities in the reading of the law. There is no distinction in the VAT treatment with regards to the transfer of interest in residential or commercial real estate, as they are both VAT exempt based on the law. However, assessments need to be done in certain instances such as providing packaged accommodation e.g “serviced apartments”, “short lets”), provision of office space as a service and so on, as these may not meet the exemption criteria in the VAT Act.

Download Pwc Tax Alert - TAT rules no VAT on the rent of buildings

Download NGX REAL ESTATE v. FIRS - JUDGMENT

PwC Podcast: Tax Recap Series

The second edition of PwC’s Tax recap series is here!

Get the latest tax insights and practical takeaways from PwC's new video podcast, Tax recap series.

Whether you're a multinational corporation, local conglomerate, small business owner, freelancer, or a taxpayer simply looking to stay informed, PwC’s tax recap video series is for you.

In Episode 2, PwC's Seun Adu, Partner, Transfer Pricing and Ochuwa Alegeh discuss a recent ruling of the Tax Appeal Tribunal in a case between Check Point Software Technologies B.V. (Check Point) and the FIRS on the validity of the Income Tax (country-by-country reporting) Regulations 2018. 

WATCH HERE!!

Considerations on the Quick Wins Report by the Presidential Fiscal Policy and Tax Reforms Committee

The Presidential Fiscal Policy and Tax Reforms Committee (“the Committee”) was inaugurated on 8 August 2023 and tasked with the mandate of addressing critical challenges around 3 main pillars:

1. Fiscal Governance
2. Revenue transformation
3. Economic growth facilitation

The Committee streamlined its objectives under these pillars into 3 phases/milestones -

• Quick wins (to be completed within 30 days),
• Critical tax reforms (to be completed within 6 months), and
• Implementation (to be completed within 1 year).

The Committee, on 24 October 2023, presented its report to the President on the quick wins recommendations. The recommendations covered key economic matters such as foreign exchange management, multiplicity of taxes and efficiency of collection, quality of spending, stimulation of local production, facilitation of economic growth e.t.c. 

For many years, Nigeria has contended with a lot of bureaucracy and duplication in functions among government agencies which has resulted in a rigid civil service, administrative inefficiencies, and an escalation in the cost of governance. Streamlining and increasing collaboration among government agencies is expected to prune the civil service and make it leaner, focused and result -oriented, with the attendant benefit of promoting ease of doing business in Nigeria.

The recommendations from the Committee are commendable and are expected to contribute immensely to tackling some of the current economic challenges plaguing the country. It is however important that the policy is implemented in full as a large part of the recommendations are dependent on each other to achieve their desired outcome. Nigeria generated 98% of its revenue across all governments from less than 10 taxes, hence the recommendation to shrink the number of taxes (which officially are about 60) to a single digit would be beneficial to both government (in terms of collection efficiency) and to taxpayers who often have their businesses interrupted by non-state actors who collect the other less-revenue generating taxes.

Download PwC 2023 - Quick Wins Report

TAT rules that VAT applied on the supply of software licences prior to recent amendments to the VAT Act, among other matters

The Tax Appeal Tribunal (TAT) has ruled that Value Added Tax (VAT) was chargeable on the supply of all goods and services in Nigeria including software licences, even prior to the Finance Acts (FAs) which expanded and clarified the definitions of “goods” and “services” for VAT purposes. The TAT ruled that only items listed as exempt in the VAT Act remain VAT exempt. 

This ruling was issued in the case between the Federal Inland Revenue Service (FIRS) and MTN (or the “Company”), further to a review carried out on the Company by the Office of the Accountant General of the Federation (OAGF) for the 2007 to 2017 accounting periods. The OAGF provided a report on the review to the FIRS, which subsequently assessed MTN to outstanding taxes (including penalty and interest) of $135m.

One of MTN's arguments was that prior to the VAT Act amendments by the FAs, the supply of software licences were intangibles/incorporeal rights which did not meet the definition of goods or services in the VAT Act and therefore were VAT exempt. Such intangibles were only included as “VATable” by the recent amendments and as such, the amendments should not be applied retrospectively.

The TAT classified the supply of software licences as a service, and ruled that they were subject to VAT pre- FAs.

Prior to the tax law amendments introduced by the FAs from 2020, the definitions of “supply of goods” and “supply of services” in the VAT Act were not elaborate and therefore were given their literal meaning to exclude intangible property. This was confirmed by the Federal High Court in CNOOC vs FIRS where it was ruled that the transfer of interest in an Oil Mining Licence was an intangible property which fell outside the scope of goods and services. The TAT did not analyse whether the supply of software licences could be classified as goods or services within their ordinary meaning, or whether there was a distinction between the intangibles considered to be exempt in the CNOOC judgement and the nature of software licences in this case.

Download PwC Tax Alert - TAT ruling on supply of software licenses

Download MTN v. FIRS - JUDGMENT