July 8, 2019
On 24 June 2019, the Court of Appeal (COA or the Court) affirmed the decision of the Federal High Court, and held that Nigerian recipients of imported services such as supply of bandwidth capacities (which are not expressly exempt under the VAT Act) are required to self-assess and remit VAT on such transactions. This decision was reached in the case between Vodacom Business Nigeria Limited (Vodacom) v Federal Inland Revenue Service (FIRS).
Vodacom executed a contract with New Skies Satellites (NSS), a non-Nigerian company based in the Netherlands for the supply of bandwidth capacities for Vodacom’s use in Nigeria. The bandwidth was received in Vodacom’s base stations in Nigeria.
The FIRS issued VAT assessment to Vodacom for the transaction – an assessment that Vodacom objected to, on the ground that it had no obligation to remit VAT as the receiver of the service. Vodacom also contended that NSS was not under any legal obligation to register for VAT in Nigeria based on the provision of the VAT Act. Thus, it posited that VAT liability could not have resulted from the transaction.
Vodacom filed an appeal at the TAT and subsequently the Federal High Court but Vodacom lost at both levels. Dissatisfied with the Federal High Court’s decision, Vodacom appealed to the COA.
Vodacom argued that Section 2 of the VAT Act subjects only services supplied in Nigeria to VAT. Thus, supply of satellite bandwidth capacities is a service which does not come within the scope of “taxable services” VAT Act because the supply was not made in Nigeria but only received in Nigeria. Vodacom also contended that NSS did not issue a VAT invoice to it as required under Section 10 of the VAT Act. Therefore, it had no duty to remit VAT on the said transaction in the absence of a VAT invoice.
The COA, however, ruled in favour of the FIRS, dismissing Vodacom’s arguments. The Court held that the supply of satellite bandwidth capacities by the non-resident foreign company to Vodacom is VATable because it does not fall within the list of goods and services exempted from VAT under the VAT Act. The COA further stressed that the service was rendered in Nigeria since it was received through Vodacom’s transponders in Nigeria even though the suppliers were not physically present in Nigeria.
In addition, the COA held that the duty of a supplier to issue a VAT invoice under Section 10 of the VAT Act is not a condition precedent to the duty of a Nigerian recipient of a VATable service to remit VAT. According to the COA, Section 15(1) of the VAT Act requires a taxable person to make monthly VAT returns on all taxable goods and services purchased or supplied by it. Thus, the FIRS can proceed to assess and collect VAT from a taxable person even in the absence of a VAT invoice.
The decision of the court in this case implies that recipients of imported goods and service, which are not expressly exempt from VAT are to self-assess and remit VAT to the FIRS even where such services have not been physically rendered in Nigeria and no VAT invoice has been issued by the supplier.
Although there are still debates regarding the COA’s decision, it is important for taxpayers to take note of the decision, as it remains binding unless the Supreme Court reaches a contrary decision.
In addition, given that the tax authorities have the powers to review and assess taxpayers on back taxes due, companies are advised to carry out a comprehensive health check to ensure that they do not have any pending tax liabilities.