On 10th September, 2020, the Tax Appeal Tribunal ("TAT") in the case of Ess-ay Holdings Limited ("Ess-ay Holdings" or "the Company") v Federal Inland Revenue Service ("FIRS") held that a lease of real property whether for commercial or residential purposes does not amount to a supply of goods and services and therefore not subject to Value Added Tax (VAT). In reaching its decision, the TAT held that a lease of real property amounts to a transfer of incorporeal rights which is outside the scope of the VAT Act.

The TAT also held that the FIRS Information Circular No. 9701 of 1997 (FIRS Circular No. 9701) which seeks to exempt only rents from residential property from VAT does not align with the provisions of the VAT Act and does not have the force of law.


Ess-ay Holdings is a Nigerian company which invests and engages in the development of real properties which are leased to tenants for both commercial and residential purposes.

Following a tax audit exercise on the Company's records in 2018, the FIRS imposed additional taxes on Ess-ay Holdings particularly with respect to VAT on incomes derived from lease payments from its commercial tenants for the 2014 - 2016 accounting years. The Company objected to the said VAT Assessment Notice.  However, the FIRS responded with a Notice of Refusal to Amend (NORA).  Dissatisfied with the NORA, the Company instituted an action at the TAT.

The main issues for determination at the TAT were whether rental incomes are liable to VAT and whether the provision of the FIRS Circular No. 9701 which seeks to exempt only rents from residential properties from VAT is valid.

Ess-ay Holdings argued that rental incomes, whether residential or commercial, are not liable to VAT as the transactions giving rise to them do not constitute supply of goods and services under the VAT Act.  The Company further noted that VAT must be administered in accordance with VAT Act and not Circulars issued by FIRS. Thus, the provisions of the FIRS Circular No. 9701 which seeks to exempt residential rent from VAT while indirectly subjecting commercial rent to VAT is null, void and of no legal effect whatsoever.

On the other hand, the FIRS argued that real estate properties are not in the list of exempted items in Section 3 and First Schedule to the VAT Act and as such they are subject to VAT as set out under relevant provisions of the VAT Act.  The FIRS also maintained that the FIRS Circular No. 9701 is valid because Section 38 of VAT Act empowers the Minister to amend, vary or modify the Schedule to the VAT Act and Section 44 of VAT Act also enables the Minister to donate this power (including the power to issue the said FIRS Circular) to the FIRS.

The TAT, however, ruled in favour of Ess-ay Holdings holding that under the VAT Act, VAT is paid on the supply of goods and services and a lease is neither good nor service and therefore not subject to VAT. In reaching its decision, the TAT noted that the VAT Act (prior to the amendment introduced by the Finance Act, 2019) did not define what constitutes "goods and services". Thus, the TAT relied on the Black's Dictionary of Law and the Sales of Goods Act as applicable in Nigeria and the United Kingdom and concluded that before a thing can be regarded as a "good", it must be moveable and where it is on a land, it must be severable from the land. While a service is an intangible commodity in the form of human effort, such as labour, skill or advice.

The TAT also relied on several judicial authorities to hold that lease of real property is a transaction for the transfer of an interest or a right (possessory) in the property and the right so transferred, assigned or granted to the tenant is an incorporeal right which is not subject to VAT under the VAT Act.

On the issue of the validity of the provisions of the FIRS Circular No. 9701, the TAT cited an array of judicial authorities and held that the FIRS Circular No. 9701 is the opinion of the FIRS as to the interpretation of tax law and does not command the force of law. While pointing out the legal powers of the FIRS to issue Circulars to provide insights into the minds of the tax authorities, the TAT held that the Information Circular alone cannot be the basis for charging a particular transaction to VAT.  On this issue, the TAT further held that an amendment to the Schedule of the VAT Act cannot be done by an Information Circular but by way of Regulations made by the Minister of Finance and even if the Minister had further delegated this power to the FIRS or its Chairman as argued by the FIRS, an Information Circular is not an appropriate framework for the making of such delegated legislation.

The TAT further took note of the recent Federal High Court decision in the case of Registered Trustees of Hotel Owners and Managers Association of Lagos ("HOMAL") v. Attorney-General of the Federation & Anor (HOMAL's Case) and took the view that the FIRS' reliance on Section 38 to VAT Act which elaborates on the Minister's powers to amend the Schedule to the VAT Act may not be helpful to its case. This is because the Federal High Court in the HOMAL's case held that the National Assembly could not donate its power of legislation to any other body, not even its own Committee and that Section 1(2) of the Taxes and Levies (Approved List for Collection) Act (similar to section 38 of VAT Act) which gave the Minister of Finance the power to amend the Act was in breach of the doctrine of separation of powers and therefore null and void.

Consequently, the TAT set aside the assessed VAT liability of the Company together with the interest and penalties.


This ruling addresses the issue of imposition of VAT on leases and based on the ruling, VAT is not applicable to real property lease transactions (both commercial and residential) and the provisions of FIRS Circular 9701 which imply that commercial rents are subject to VAT are not valid in law.  This aligns with the provisions of the VAT Act at the time of the transactions covered by the decision. However, it is important to note that the TAT, sitting in Benin, delivered a contrary ruling in the case of J.W. Ellah, Sons & Company Ltd. v. FIRS (Ellah Case) on 9th September 2020 (a day prior to the decision in the Ess-ay Holdings case). In the Ellah Case, the TAT relied on the FIRS Circular No. 9701, the First Schedule to the VAT Act and the 2006 decision of the VAT Tribunal in the case of Federal Board of Inland Revenue v Ibile Holdings to hold that VAT is applicable on commercial rents. Furthermore, in that case, the TAT expanded the definition of "Supply of goods" under the VAT Act to cover commercial leases and further held that such leases are subject to VAT while exempting residential leases from VAT. In reading the two decisions, that of Ess-ay Holdings comes across as more detailed and better articulated. However, it should be noted that both rulings were delivered by the TAT in different zones, which are of co-ordinate jurisdiction. Thus, it is likely that in implementing the decisions, FIRS will prefer that of Ellah, while taxpayers will prefer that of Ess-ay Holdings. It is therefore necessary that the Federal High Court, to which appeals go from the TAT, considers the decisions on appeal and decides which is valid.

It is also important to note that the Finance Act, 2019 has amended the provisions of the VAT Act by inserting definitions for goods and services in Section 46. Under the new provisions, goods are defined as all forms of tangible properties that are movable at the point of supply- excluding money or securities- and 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 are also defined to mean anything other than goods, money or securities which is supplied excluding services provided under a contract of employment. However, interest in land is stated as exempt from VAT. Given the expanded definition of goods which include intangible assets over which a person has ownership rights, there may be a very strong argument that leases constitute ownership rights in residential or commercial properties and are thus subject to VAT. The counter argument to that may however be that interest in land is inseparable from ownership rights whether in residential or commercial properties and divestment, sale or lease of such interest in such properties should be exempt from VAT as provided in the Finance Act.

On another note, although the question of the validity of the powers of the Minister of Finance was not directly in issue before the Tribunal in the Ess-ay case, the TAT in its concluding remarks cited the HOMAL's case as an authority for the position that the Minister's powers under the VAT Act to amend or vary the schedule to the Act may not be valid.   Given all the above developments it will be necessary for the FIRS and the affected taxpayers to seek clarify on the correct position of the law by going on appeal against the adverse decision, as otherwise, taxpayers, may cherry pick which decisions to comply with. Pending an appeal or any further development, taxpayers that may be impacted by these decisions, should obtain professional advice in order to be properly guided as to how these decisions affect them

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