The Tax Appeal Tribunal ("TAT" or "the Tribunal") sitting in Lagos, on 19 October 2023, ruled that rental income derived from real estate properties is not subject to Value Added Tax (VAT). This decision was reached in the case between NGX Real Estate Limited ("NGX" or "the Company") and Federal Inland Revenue Service ("FIRS").

The key issues for determination in this case, were the applicability of VAT or otherwise, on rental income and the applicable periods of the amendments to the VAT Act in defining goods and services (introduced by Finance Acts 2019 and 2020). In this article, we have analyzed the decision of the TAT and the potential implications on businesses, particularly those operating in the real estate sector.


Prior to the Finance Act 2020, there were debates on the applicability of VAT on rent and leases. This was largely due to the fact that the definition of goods or services in the VAT Act, as amended by the Finance Act 2019, did not expressly include or exclude rent or lease. Thus, it was a common practice to place reliance on the FIRS' Information Circular 9701, which states that VAT is not applicable on rent of residential properties. This implies that the FIRS deemed rent on properties used for commercial purposes as subject to VAT.

There have also been conflicting positions and judgements as indicated below:

  • The VAT Modification Order of 2020 (effective 3 February 2020), exempted "lease and rental of residential accommodation by persons other than corporate entities" from VAT. However, the VAT Modification Order of 2021 (effective 30 July 2021) deleted this provision.
  • The TAT sitting in Benin, on 9 September 2020, in the case of Chief J.W. Ellah, Sons and Company Vs. FIRS ruled that VAT is applicable on rent from commercial property, based on its understanding of the definition of supply of goods and services, which includes rent. In reaching its decision, the TAT also referenced the FIRS Circular 9701, which exempted "house rent on residential accommodation" from VAT, but does not exempt commercial rents from VAT.
  • In the case of Ess-Ay Holdings Limited (Ess-Ay or the Company) Vs. Federal Inland Revenue Service (FIRS), the TAT sitting in Lagos on 10 September 2020 ruled that rent (commercial or residential) was not subject to VAT on the basis that it relates to incorporeal property right, which is outside the scope of the VAT Act. The TAT also held that an information circular 9701 issued by the FIRS merely contains FIRS' interpretation of the tax laws and that 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.

Given the conflicting rulings above, some taxpayers took the position that VAT is not applicable on rent (residential or commercial) only for periods prior to the Finance Act, while others adopted a more conservative approach by continuing to account for VAT on rent.

Overview of the Appeal and Arguments

NGX is a real estate company engaged in the acquisition, leasing and hiring of property. The Company earned rental income from rental/lease of real properties in 2020 and did not charge VAT on the rental income. Therefore, the Company did not make VAT remittances to FIRS on the rental income received. The FIRS conducted a review / audit on the tax records of the Company for 2020 Financial Year (FY) and issued a tax assessment of ₦36.2million (inclusive of interest and penalty) for unremitted VAT during 2020 FY. Dissatisfied with the FIRS' assessment, NGX filed an appeal with the TAT, seeking to set aside the assessed VAT liabilities.

In its appeal, NGX argued that the FIRS had misinterpreted the provisions of the VAT Act, as amended by the Finance Acts (FA) 2019 and 2020, and had wrongly subjected its rental income to VAT. NGX argued that FA 2019 and 2020 had defined goods and services to exclude interest in building;

The FA 2019 defined "goods" as-

a). all forms of tangible properties that are movable at the point of supply, but does not include money or securities; and

b). any intangible product, asset or property over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another excluding interest in land;

"services'' means anything other than goods, money or securities which is supplied excluding services provided under a contract of employment. Furthermore, the FA 2020 also redefined goods and services as follows; "goods" for the purposes of this Act, means all forms of tangible properties, movable or immovable, but does not include, land and building, money or securities;

"services" means

a). anything, other than goods, or services provided under a contract of employment; and

b). includes any intangible or incorporeal (product, asset or property) over which a person has ownership or rights, or from which he derives benefits and which can be transferred from one person to another, excluding interest in land and building, money or security.

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