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TAX Appeal Tribunal Rules That Rent is Not Subject to VAT


The Tax Appeal Tribunal (TAT or the Tribunal), on 10 September 2020, in the case between Essay Holdings Limited (Essay or the Company) and the Federal Inland Revenue Service (FIRS), ruled that rent is not subject to Value Added Tax (VAT).

Prior to the amendment of the VAT Act by the Finance Act 2019, supply of goods was defined as “any transaction where the whole property in the goods is transferred or where the agreement expressly contemplates that this will happen and in particular includes the sale and delivery of taxable goods or services used outside the business, the letting out of taxable goods on hire or leasing, and any disposal of taxable goods”.  Pursuant to this definition, the FIRS, by its Information Circular 9701, stated that VAT is not applicable on rent on residential properties. The implication of this is that the FIRS deemed rent on properties used for commercial purposes subject to VAT, while rent on residential properties is not.


The above-referenced case was, therefore, to seek to challenge the applicability of VAT on rent, commercial or residential, and determine the extent to which the Information Circular mentioned can impact the law. These matters were considered by the TAT and resolved as follows:

  • Whether rental income is subject to VAT under the VAT Act

The Tribunal held that lease of real property, whether for commercial or residential purpose, does not amount to supply of goods and services. This relates to incorporeal property rights, which is outside the scope of the VAT Act.

  • Whether the provisions of the FIRS Information Circular No. 9701, dated 1 January 1997, which exempts only rent from residential properties is not ultra vires the powers of FIRS

The TAT held that an information circular issued by the FIRS merely contains FIRS’ interpretation of the tax laws. It is not a subsidiary legislation which has the force of law. Therefore, any amendment to the VAT Act cannot be done via a circular.


The above ruling raises some pertinent questions for taxpayers such as whether taxpayers will be able to recover VAT paid “erroneously” to FIRS on rent of non-residential properties, and whether the application of the ruling can also be extended to other incorporeal properties such as royalties, licenses, etc. It also raises the question of whether taxpayers can continue to rely on Information Circulars issued by the FIRS in making business decisions.

Notwithstanding the above, it is important to note that the Finance Act 2019 has modified the definition of goods to include “any intangible…asset or property over which a person has ownership or rights, or from which he derives benefits…except interest in land”. This implies that transfer of rights or interest in incorporeal properties (excluding interest in land) now fall within the definition of goods and therefore, subject to VAT at 7.5%. Taxpayers should be guided accordingly.


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