The Federal Inland Revenue Service (FIRS) has issued Information Circular No.: 2021/03 (“the Circular”) on the application of Value Added Tax (VAT) on road tolls, paid parking, access pass, recreational or entertainment parks, admission to events and other related services based on Section 2 (1) of VAT Act, Cap. V1, LFN, 2004 (as amended) (VATA or “the Act”).
We have provided below, a summary of the key aspects of the Circular:
1. Services liable to VAT
The Circular provides that toll gates or points, paid parking, recreational parks, entertainments and other related operations, for which a fee is paid for access or use (“the services”), are liable to VAT in line with the provisions of Section 2 and the definition of “services” in Section 46 of the VATA.
Further, the FIRS noted that where the services are outsourced, VAT will apply on both the commission and fees charged by operators, as they are not VAT-exempt in the First Schedule to VATA.
2. Value of taxable services
The Circular outlines various business arrangements in relation to the services and the applicability of VAT thereon as follows:
3. Compliance requirements
Operators of the services are required to issue tax invoices that clearly state the service fee and the VAT charged thereon, in line with the provision of Section 13A of VATA, and comply with other filing obligations in the Act.
Toll gates, especially on public amenities, such as roads and bridges, do not constitute a supply of service for VAT purposes. Rather, they are tax-collection mechanisms by the government for the use of such facilities. The Black’s Law Dictionary (9th Edition 2009) defines a “toll” as “a tax or due paid for the use of something, esp., the consideration paid either to use a public road, highway, or bridge…”. Thus, as a toll in itself is a tax, applying VAT on it will amount to charging tax-on-tax.
Therefore, the FIRS should revisit the inclusion of road tolls and access pass for use of public amenities as taxable supplies in the Circular to avoid double taxation.
Please click here to read the FIRS’ Circular
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