On 24th June, 2020, the Federal Inland Revenue Service ("FIRS" or "the Service") issued a Public Notice stating that certain items which were included as exempt from Value Added Tax ("VAT") under the recently issued VAT Modification Order will not be treated as exempt by the Service. We have provided below, the details of the Public Notice and its implication for taxpayers.


The Honourable Minister of Finance, Budget and National Planning ("the Minister"), pursuant to the powers granted to her office under Section 38 of the VAT Act, recently issued the VAT Modification Order, 2020 ("the Order").  The Order, which is effective from 3rd February, 2020, modifies and expands the list of exempt goods and services in the First Schedule to the VAT Act and provides clarification on the exempted items already listed in the VAT Act. (Read our Tax Alert on the VAT Modification Order here)

The FIRS' Public Notice states that following the issuance of the Order, the Service received several enquiries from taxpayers requesting clarity on the exemption status of certain items listed as VAT exempt in the Order.  The FIRS, in response, stated that certain items included as exempt from VAT in the Order are not exempt from VAT as they were not listed in the First Schedule to the VAT Act or in any previous Ministerial Order. The items referred to are listed below:

  1. Natural gas;
  2. Essential raw materials for the production of pharmaceutical products;
  3. Renewable energy equipment; and
  4. Raw materials for the production of baby diapers and sanitary towels.


This FIRS Notice has generated some uncertainty on the application of VAT exemption on the highlighted items. Given that the FIRS is an agency operating under the Federal Ministry of Finance, Budget and National Planning, the varying positions communicated by the FIRS and the Ministry have created some controversy in relation to the application of the VAT Modification Order.

While it is clear that Section 38 of the VAT Act gives the Minister the power to amend, vary or modify the list set out in the First Schedule to the VAT Act, this power may be challenged in the light of the recent decision of the Federal High Court in the case of Registered Trustees of Hotel Owners and Managers Association of Lagos v Attorney General of the Federal & Minister of Finance (Hotel Owners' Case), which held that the Minister lacks the powers to amend or vary the Schedule to the Taxes and Levies (Approved List for Collection) Act (Taxes and Levies Act). Although this decision did not directly consider the Minister's powers under the VAT Act, the Public Notice issued by the FIRS reversing exemptions provided under the Modification Order, might create the impression that FIRS concurs with the decision in the Hotel Owners' Case which limits the Minister's powers regarding amending schedules to a principal legislation. It is however, unlikely that the FIRS, being an agency of the Government would openly challenge the powers of the Finance Minister. In our view, it is more likely that the FIRS has obtained the approval of the Minister to issue its Public Notice and we expect further communication from the Ministry of Finance itself on this issue. We will continue to monitor developments on this issue and bring same to the fore. However, pending any further developments, taxpayers are advised to consult with their tax advisors on how the VAT Modification Order and the Public Notice by FIRS may affect their business arrangements and potential VAT liability on the highlighted items.

Originally published 09 July, 2020

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