VAT

Justice Rilwanu Aikawa of the Federal High Court in Lagos has barred the Federal Inland Revenue Services (FIRS), from enforcing VAT provisions on goods and services consumed in hotels, restaurants and event centres in Lagos State. Justice Aikawa gave the order while delivering judgment in the suit seeking to restrain the Attorney General (AG) of Lagos State from enforcing the Hotel Occupancy and Restaurant Consumption (Fiscalisation) Regulations Law (HORC), 2017, in the view that VAT Act has covered the field.       In the suit, the Registered Trustees of Hotel Owners and Managers Association of Lagos (HOMA) had sued the AG in Lagos State and FIRS in the suit no. FHC/L/CS/360/2018. The HOMA had asked the court to declare that by virtue of Section 7, of the VAT Act, the second defendant (FIRS) was the only lawful and constitutional agency charged with the administration and management of consumption tax generally and particularly in Lagos state. Justice Aikawa, in delivering the judgment, dismissed the suit and held that it was lacking in merit, adding that the plaintiff was obliged to comply with the HORC Law 2009 and the HORC Regulations 2017. The court also raised two issues by herself; whether the Federal High Court had the jurisdiction to pronounce on the constitutionality of VAT. The court resolved that it has jurisdiction. Aikawa also held that the issue of the powers of the minister to amend the schedule to the Taxes and Levies (Approved List for Collection) Act was not in dispute before the court and so no pronouncement could be made on it. The court in dismissing the originating summons, as lacking merit and resolving the questions and reliefs sought in favour of the first defendant, held: “That consumption tax is not stated in either the exclusive and concurrent legislative list, in the Constitution of Nigeria, therefore, the absence on the concurrent and exclusive lists, puts consumption tax on the residual list, which is within the legislative competence and powers of state governments. “That VAT Act can’t cover the field over what the federal government has no power to legislate upon, under the constitution, therefore the determinant factor in the issue of covering the field, is whether there is the power to make the Law. “The provisions of VAT Act relating to consumption tax are inconsistent with the Nigerian constitution. “The Minister of Finance has corrected the anomaly, by including consumption tax in the list of taxes collectible by the state government, therefore, the responsibility for collecting consumption tax lies on the state government. “The provisions of Sections 1, 2, 4, 5 & 12 of VAT Act are in breech of the 1999 constitution and the plaintiffs are obliged to comply with the HORC Law 2009 and the HORC Regulations 2017. “FIRS are barred from enforcing VAT provisions as it relates to a consumption tax on goods and services consumed in Hotels, Restaurants and Event Centres in Lagos State, ” the judgment read. The News Agency of Nigeria (NAN) reports that the Registered Trustees of HOMA had filed an originating summons asking the court to determine the following: “Whether the VAT Act regulating the imposition of tax on consumption of goods and services has not covered the field on taxation of goods and services consumed in hotels, event centres, and restaurants in Lagos State. “Whether by virtue of Section 7 of the VAT Act, the second defendant (FIRS) is not the only lawful and constitutional agency charged with the administration and management of consumption tax generally and particularly in Lagos State. “Whether the provisions of the Hotel Occupancy and Restaurant Consumption (Fiscalization) Regulations 2017 are of no effect, in view of the fact that VAT Act has covered the field”. Consequently, the first defendant, (AG Lagos State), filed a counter-claim urging the court to determine; “Whether the provisions of Sections 1, 2, 4, 5 & 12 of VAT Act by which the FIRS imposes tax on customers for goods and services consumed in hotels, restaurants and event centres in Lagos State is inconsistent with the provisions of Sections 4(2), 4(a) & (b) and 4 (7) (a) & (b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) and therefore unconstitutional and invalid? “Whether by the provisions of Section 4 (7) of the 1999 Constitution of Nigeria, the provisions of the Taxes and Levies (Approved List for Collection) Act Cap T2 Laws of the Federation of Nigeria as amended by the Schedule to the Taxes and Levies order 2015) and the provisions of HORC Law 2009. “Whether the counter-claimant is the only constitutional and lawful body empowered to assess, impose and collect taxes from customers of the Plaintiff for goods and services consumed in hotels, restaurants and event centres in Lagos State.   Source: Guardian

Financial analysts have described the proposed Communication Service Tax Bill as a misadventure and would only serve to overburden consumers who already bear 5.0% Value Added Tax (VAT) on telecommunications services. The 2016 version which failed, was meant to help boost government revenues from non-oil taxes in the wake of the collapse in oil prices between 2014 and 2016. The 2019 version of the bill passed the first reading in the Senate last week and it proposes a 9.0% Communication Service Tax (CST) to replace the planned increase in VAT from 5.0% to 7.5% by the FG.        The CST when passed into law will be levied on the consumers of voice calls, MMS, SMS, data usage and Pay per View TV services provided by mobile telecommunication and internet service providers. Failure of telecommunication companies to file returns attracts N50,000 and N10,000 fines daily until compliance while non-remittance of the tax will attract a monthly interest on the unpaid tax at 150.0% of lending rates by commercial banks. However, analysts at Afrinvest posited that the CST would overburden consumers who already bear 5.0% Value Added Tax (VAT) on telecommunications services. They said for the telecommunications sector, the proposed CST worsens the issue of tax multiplicity. In addition to existing taxes, companies would bear increased costs of compliance and lower patronage as consumers react negatively to new taxes. They further argued that with the sector contributing 1.2% to the real GDP growth of 1.9% in Q2:2019, there is the prospect for even slower economic growth. “We do not expect the CST to generate as much as the proposed VAT of 7.5% which we conservatively estimate to bring in additional N545.1 billion as VAT revenue. Revenues from the CST of 9.0% would clearly fall short of the FG’s expected increase in VAT, even without considering the changes to consumer demand and growth in the sector. “We believe the FG’s approach towards taxes could affect economic growth and dampen the investment climate, with negative implications for tax collections,” Afrinvest noted.   Source: Daily trust

The Federal Government has confirmed the removal of Value Added Tax (VAT) on Liquefied Petroleum Gas (LPG) in Nigeria, otherwise known as cooking gas. This means that the cost of LPG, commonly referred to as cooking gas, will be relatively stable, thus attracting many investors and users in the country. The Chairman, Federal Inland Revenue Service, FIRS, who disclosed this at the stakeholders’ meeting with Vice President Yemi Osinbajo, in Abuja, recently said the measure was targeted at growing the LPG sector.      The Federal Government had earlier in the year promised to remove VAT on cooking gas to encourage utilisation of the product in many households. Osinbajo had explained that specifically, for household cooking, the present administration is targeting a 40 percent adoption rate (i.e. 13.8m households) in 5 years, and 73 percent adoption in 10 years (33.3m households). “We believe that the sub-sector can create up to 2 million new direct and indirect jobs in Nigeria. Our determination to prioritise the LPG sector development culminated in the Federal Executive Council’s approval of the National Gas policy in 2017, with dedicated input for the enhancement of the LPG sub-sector. Our driving vision has been to transform the sub-sector from a commodity sector based on export to a value creation sector based on domestic utilisation and industrialisation,” he said. The President, Nigeria Liquefied Petroleum Gas Association (NLPGA), Nuhu Yakubu said: “The Nigeria LP Gas Association is the umbrella body of all stakeholders in the LP Gas sector in Nigeria. The primary objective of the Association is to promote the use of LP Gas in Nigeria at affordable costs. Findings by The Guardian had shown that LPG business will likely be boosted in Nigeria, as the Nigerian LNG Limited, a major local producer has indicated interest to increase supply, while demand for LPG is on the rise. In a message obtained from its website, the company stated: “NLNG commenced the supply of Liquefied Petroleum Gas (LPG), otherwise known as cooking gas, to the domestic market in 2007 when refineries became challenged and supply was grossly inadequate. Since then, the issue of inadequate supply has become a thing of the past. “The intervention, which is in line with company’s vision of helping to build a better Nigeria, has significantly contributed to the stimulation and development of the domestic LPG market in Nigeria and has effectively brought down the price of cooking gas from over N7, 000 in 2007 to less than N3, 500 per 12.5kg cylinder today. “NLNG is committed to delivering 350,000 tonnes of LPG into the Nigerian market annually and has signed Sales and Purchase Agreements (SPAs) with fifteen off-takers (all Nigerian companies) for the lifting of LPG for the domestic market.”   Source: Guardian

Value Added Tax (VAT) is definitely the best-known tax in Nigeria. Apart from the fact that we find VAT on receipts given to us almost everywhere e.g at the mall, the cinemas, etc, the Federal Government has practically made Nigerians memorise everything about the proposed increase in VAT like some form of national anthem. We are thus very certain you know that almost everyone in your family knows, that people at the owambes you’ve been attending know and that all your connections on social media also know that the Federal Executive Council (FEC), has approved an increase in VAT rate from 5% to 7.5%. It is yet to be ratified by the National Assembly, but we should keep our fingers crossed however. Besides, the VAT Act has to be amended for the increase to take effect. Do you know what this increase will mean for you and how it will impact your day to day activities? WHAT IS VAT ALL ABOUT? VAT is an indirect tax that you pay when you purchase goods and services. It is levied when there is Supply. We all know from school that in a basic chain of Supply, there is the manufacturer, the wholesaler, the retailer and the final consumer. As VAT is levied on supply, the actual tax burden is shifted from one party to the next until the final consumer. Thus, when the manufacturer is supplied raw materials, manufacturer pays VAT. When manufacturer supplies finished goods to the wholesaler, wholesaler pays VAT. When the wholesaler supplies the goods to the retailer, retailer pays VAT. When the retailer supplies to the final consumer, the final consumer (aka you) pays VAT. The only issue is that the law allows the manufacturer, wholesaler and the retailer to transfer their VAT burden to the final consumer so that the final consumer actually ends up paying the VAT of everyone in the chain of supply. (To understand how this happens, please see our Tax Video on how value added tax works – and our article on Value Added Tax) RATE OF VAT VAT is currently levied at a flat rate of 5% and is administered by the Federal Inland Revenue Service (FIRS). The FEC has however approved a VAT increase to 7.5% and the proposed rate is not to take effect until the VAT Act is amended.   Source: Taxaide

There are growing concerns by housing professionals on the possibility of fresh housing crisis in the country should the proposed Value Added Tax (VAT) by the federal government be implemented in 2020. Although government has stated that the process of increasing the VAT rate would involve extensive consultations with state governments and local government authorities, and others in the public and private sectors of Nigeria, experts apprehensive that the process could ultimately result in amendment of the VAT law to give legal backing to the new rate which would negatively impact the housing industry. Already, the sector is weighed down by exorbitant taxes that apply to real estate or property transactions in Nigeria and some of which include, the companies income tax and personal income tax, value added tax, capital gains tax, stamp duties tax and the state property taxes (Lagos State Land Use Charge Law and the Federal Capital Territory Property Tax, among others. Other problems that have hampered industry include, lack of secure access to land, high cost of construction, limited access to finance, bureaucratic procedures, high cost of land registration and titling, uncoordinated policies and implementation at Federal and State levels, ownership rights under the Land Use Act, lack of critical infrastructure, affordability gap, inefficient development control, youths harassment of developers, high cost of mortgages and inaccessibility to housing finance and others. The Federal Executive Council had approved a proposed increase of Value Added Tax from five per cent to 7.2 per cent. The proposed increase to the VAT rate has been previously considered by the federal government, with one of the reasons in support of a VAT rate increase being that Nigeria’s five per cent VAT rate is the lowest in Africa. But investigations shows that Ghana, a West Africa nation is abolishing and reducing VAT to shift focus from taxation to production while Nigeria is increasing VAT to fund minimum wage. Expounding on the issue, the Chairman, faculty of real estate consulting of the Nigerian Institution of Estate Surveyors and Valuers, Niyi Fadoju said, “Although house rent is not subject to VAT but it would have effect on the industry because of two inputs; professional services and building materials used in construction sector.” Fadoju explained that the policy would push up the cost of delivery of houses to about 2.5per cent while the professional services and building materials would be increased by 50 per cent and housing supply may be reduced. He observed that overtime, Nigeria has being contending with issue of multiplicity of taxes at the three levels of government, stating that the country has all along being a place for the survival of the fittest. “What it would mean is that the group of those that are surviving in the built industry would reduced. The strong like what usually happen in a capitalist economy knows how to pass the taxes to the poor. Ultimately, it would affect the affordability of housing by the poor more than it would affect the rich,” Fadoju said. In his submission, the immediate past national president of the Nigerian Institute of Building, (NIOB), Kenneth Nduka stated that one thing about VAT is that government would wish to collect it as tax to help them finance infrastructure and other projects, however, he said the truth of the matter is that the cost implication of VAT is transferred to the general public. Nduka further said in all ramifications, housing as a programme has to depend on building materials and these materials, VAT would be paid on their purchase and the services of professionals would also enjoy increase VAT. “When implemented it thus, means that anyone who wants to build, cost of materials would have to increase by 7.5per cent and same for services of professionals in the housing industry. The financial burden is thus transferred on the investors. He stated that the federal government that there is big challenge in housing availability, stressing that if government must insist on VAT, they could give exemption to the built industry, especially housing materials because it would serve as a booster to those interested in delivery of houses to acknowledge that the government identify with their commitment to the industry. The former president of Association of Consulting Architects of Nigeria, (ACANigeria), Mr. Kitoyi Ibare-Akinsan explained that the increase is tied to real estate straight away because the sector pays VAT in both the construction, rent and purchase lamenting that the economies of real estate is bad already. “Everything would go up. For architects who earn less in the sector, any fee we get, practitioners have to go and pay 7.2per cent VAT instead of 5per cent. An exemption for the sector by government would be a wise step to take by government to improve the real estate industry”. Given the fact that Value added tax supposed to be for luxurious goods, a past president of Nigerian Institute of Town planners, Luka Bulus Achi maintained that whatever percentage added to the existing VAT rate would automatically trigger an increase in the value/price of market property later.   Source: The Guardian