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Another TAT declares commercial rent liable to VAT

Another TAT declares commercial rent liable to VAT

The Tax Appeal Tribunal (TAT or “the Tribunal”) sitting in Benin on 9 September 2020 decided in the case between Chief J.W. Ellah, Sons & Company Limited (CESCL or “the Appellant”) and Federal Inland Revenue Service (FIRS or “the Respondent”) that rental income derived from the lease of commercial properties is liable to VAT, to the extent that it is not exempted from the First Schedule to the Value Added Tax (VAT) Act.

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Partner & Head, Tax, Regulatory & People Services

KPMG in Nigeria

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The judgment directly conflicts with the judgement of the TAT Lagos Zone delivered a day later on 10 September 2020 in Ess-Ay Holdings Limited and Federal Inland Revenue Service where the TAT held that rental income derived from lease of real estate properties, whether for residential or commercial purpose, is not subject to VAT.

Facts of Ellah case relating to VAT on commercial rent and rationale for the decision

While there are various tax issues involved in this case, we have limited our review of the case to the Tribunal’s decision that commercial rent is subject to VAT.

The Appellant is involved in the business of maintaining and leasing of real estate properties to commercial and residential customers. It alleged that the Respondent in its revised assessment of 18th December 2018 unlawfully and erroneously assessed VAT on commercial lettings of its premises, being transfer of choses in action which do not qualify as supply of goods and services and are not VATable under Section 1 of the Value Added Tax Act, 1993 as
amended (henceforth referred to as “Section 2 of VAT Act, 2004” as amended).

The TAT in its judgement referenced Section 2 of VAT Act 2004, which provides that VAT “shall be charged and payable on the supply of all goods and services (in this Act referred to as “taxable goods and services”) other than those goods and services listed in the First Schedule to this Act” (emphasis supplied), and ruled that:

  • all goods or services that are not expressly exempted as
    listed in the first Schedule are VATable.
  • building is (sic.) not listed as one of the exemptions in the
    payment of VAT.

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