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Experts say the Federal High Court’s Dec. 19, 2017 rule in the case between Vodacom Business Nigeria (Vodacom) and the Federal Inland Revenue Service (FIRS) has introduced uncertainties in the treatment of Value Added Tax (VAT) transactions between Nigerian Companies and non-resident companies (NRC).
The FHC ruled in the case between Vodacom Business Nigeria Limited (Vodacom) and the Federal Inland Revenue Service (FIRS) that the supply of satellite network bandwidth capacities by a non-resident company (NRC) to a Nigerian company for a consideration is subject to VAT in Nigeria, thereby affirming the decision of the Tax Appeal Tribunal on the matter. In delivering the judgment, the Judge relied on the provisions of Section 2 of the VAT Act (as amended in 2007).
Section 2 of the VAT Act provides that: The tax 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.
Section 10(2) of the VAT Act suggests that supplies made by NRCs to Nigerian entities would only be taxable in Nigeria if the NRCs supply the goods or services in Nigeria. Notwithstanding the uncertainties as to the actual location of supply, the Court held that the supply of bandwidth capacities to a Nigerian company falls within the supply of services that is liable to VAT by virtue of Section 2 of the VAT Act.
The increase in information technology and e-commerce activities has introduced some novel issues on the appropriate treatment of Value-Added Tax (VAT) on cross-border transactions.
“The Nigerian legislative framework has not evolved in the same proportion to effectively address the taxation of services where the suppliers of such services are not resident and registered for VAT purposes in Nigeria” AndersenTax, global providers of a wide range of tax, valuation, financial advisory and related consulting services to individual and commercial clients stated in report published February.
The report explained it is important for lawmakers to revisit the Nigerian VAT Act and amend the contentious sections to ensure clarity in the application of VAT on cross border transactions especially items that are currently under dispute such as imported services, e-commerce activities, and electricity.
Moreover, there is a need to expand the limited scope of the Nigerian VAT system into a classical system that would also address the recoverability of VAT for service companies beyond the current system that more or less mirrors a simple sales tax regime.
STEPHEN ONYEKWELU
