Introduction:
On 17th February 2021, the Tax Appeal Tribunal
(TAT) delivered its judgment in the case of Tourist
Company of Nigeria v. Federal Inland Revenue Service, Unreported Appeal No.
TAT/LZ/VAT/033/2018 (the Judgment). The Judgment considered amongst other
things, the applicability of VAT to Casino Revenues. This review is divided
into 5 parts. Part 1 shall succinctly state the facts of the Appeal; part 2
shall list the issues for determination as considered by the TAT; part 3 shall
discuss the arguments of the Appellant and FIRS; part 4 shall state the
relevant ratio of the TAT on the issues determined; and part 5 shall conclude
with an analysis of the Judgment of the TAT in this respect.
1.
Facts of the Appeal:
The facts of the Appeal are three-fold:
i.
The Appellant filed the Appeal further
to the Notice of Refusal to Amend issued by FIRS. The Appellant is part of a
global group of hospitality services companies which utilise one of their
member companies (Operator), domiciled in South Africa, for the primary
purpose of managing all aspects of their business including marketing,
personnel, administrative and operational procedures on behalf of the group. In
performing its management duties, the Operator engages non-resident vendors on
behalf of the Appellant and invoices the Appellant for the payment of these
services. FIRS contested that the
Appellant is liable to pay VAT on the services provided by the non-resident
third-party vendors for which the Appellant claims that monies paid to the
Operator are reimbursement of these services which are deemed expenses not
chargeable to VAT.’
ii.
Under a separate contractual
agreement, the Appellant receives services from Ikeja Hotels Limited (IHL)
which issues its invoices less VAT. FIRS claimed that the Appellant as the
taxpayer failed to pay VAT for the services rendered by IHL. The Appellant
contended that the duty is on IHL to include VAT in its invoice to the
Appellant, which IHL failed to do.
iii.
The Appellant also runs a casino and
gaming facility within its premises, where patrons stake money in expectation
of higher money winnings. FIRS contends that a casino and gaming facility
offers services to its consumers, which services the Appellant is obligated to
charge VAT on. The Appellant claims it neither charges its consumers any fees
or commission to place a stake nor collects commission or any fees in respect
of winnings by its consumers or for use of the casino facilities, hence offers
no consideration service and not liable to pay VAT.
2.
Issues for Determination :
The TAT deduced
the following issues for determination:
a.
Whether the Appellant is liable to pay
VAT with respect to the management services provided by the Operator;
b.
Whether the Appellant is liable to pay
VAT on the reimbursable expenses incurred by the Operator on behalf of
Appellant;
c.
Whether the Appellant is liable to pay
VAT with respect to services provided by IHL;
d.
Whether the Appellant is liable to pay
VAT on its Casino Revenue; and
e.
Whether the Appellant is liable to pay
interest and penalty.
3.
Parties’
Arguments:
Issues 1 & 2
a.
The
Appellant argued that VAT is not payable on services rendered outside Nigeria
by non-resident companies (NRCs) not having business or physical presence in Nigeria; the obligation to
include VAT is therefore only on an NRC that carries on business in Nigeria
which has registered for VAT with the FIRS and included tax on its invoice. The
Appellant relied on the case of Gazprom Oil & Gas Nigeria limited v. FIRS
TAT/ABJ/APP/030/2013.
b.
The Appellant
posited that it merely reimburses the Operator for expenses incurred on its
behalf with 3rd party vendors. The Appellant therefore argued that
it has no VAT liability or reimbursable expenses as no value is added and thus
no service for which it would pay consideration. The Appellant further argued
without admitting, that even if VAT were applicable on the transaction, the 3rd
party vendors would be liable to pay VAT as the legal obligation falls on them
to deduct and remit.
c.
FIRS argued
that the contractual agreement between
the Appellant and the Operator, clearly indicates the rendering of management services by the
Operator to the Appellant and not reimbursable services as wrongly argued by
the Appellant. FIRS further argued that that per section 12 of the VAT Act, a
person to whom goods and services are supplied in Nigeria is obligated to remit
the tax in the currency of the transaction.
Issue 3
d.
The
Appellant argued that it is not liable to self-charge VAT on services rendered
to it by IHL because section 12 of the VAT Act does not create an obligation on
the Appellant to self-charge VAT where the service provider (IHL) fails to do
so. The Appellant argues further that Section 13 of the VAT Act imposes an
obligation on a taxable person who makes a taxable supply to furnish the
purchaser with an invoice containing information required to enable payment of
VAT on the supply. Hence, the proper action to be brought before the TAT is for
the FIRS to urge the taxable person to invoice for VATable income from the
Appellant to validate the Appellant’s payment of VAT.
e.
FIRS argues
that section 12 of the VAT Act imposes payment of VAT on the ultimate consumer.
Hence, where IHL failed to include tax in its invoice, the Appellant is still
expected to pay the tax notwithstanding. FIRS
argued further that it could not be the intention of the legislature
that tax liabilities due to the Federal Government be lost merely because a
service provider failed to include VAT in its invoice. This point was
buttressed with the fact that a service provider is an agent of FIRS for the
purpose of collection of VAT on its behalf.
Issue 4
f.
The
Appellant argued that casino revenue is not subject to VAT because the
Appellant’s casino operations do not constitute either a supply of goods or
supply of services within the scope of the VAT Act. The Appellant contends that
it receives no consideration whatsoever for the use of the casino and gaming
facilities and the revenue derived from owning and operating the casino
facilities arises from the positive difference between the amounts staked and
the patron’s winnings which is subject to Companies Income Tax. The Appellant
insists, without admitting that if VAT were payable on casino revenue, it would
be the liability of the consumer and not the supplier. The Appellant further
argues that pursuant to section 35C of the National Lottery (Amendment) Act
2017, its casino business is exempted from the provisions of the Companies
Income Tax Act and the VAT Act.
g.
FIRS argued
that VAT is to be charged and payable on the supply of all goods and services
other than goods and services expressly excluded under the VAT Act. FIRS
contends that the effect of the Appellant deriving revenue from the positive
difference between the amounts staked and consumers’ winnings, in essence
proves that the Appellant accumulates revenue from its operation of the casino.
FIRS further contends that the provision of the casino facility is in itself, a
provision of a service under the Casino (Licensing) Law 1964.
Issue 5
h.
The
Appellant argued that as a result of its timeous objection to the additional
assessment and reassessment notice of the Appellant and subsequent appeal to
the TAT, it is not in default of its tax obligations to warrant the imposition
or payment of the FIRS assessed interest and penalties.
i.
The
Appellant further argued that the decisions in Gazprom and Vodacom came after
the transactions which the FIRS seeks to impose tax, occurred, hence, no clear
legal basis for such liability.
j.
FIRS argued
that based on the VAT Act, where a taxable person does not remit tax due and
payable within the period prescribed by the VAT Act, the provisions of section
19 of the VAT Act relating to collection and recovery of unremitted tax,
penalty and interest applies to the defaulting taxpayer.
4.
Ratio of the TAT:
The
Tribunal in its Judgment, held as follows:
a.
Whether
the Appellant is liable to pay VAT on Management Services provided by SIML.
It
is the considered opinion of the Tribunal that since the services in contention
in this case do not fall within the exempted goods and services list in the
First Schedule, they are within the purview of Section 2 of the Act. Section
10(2) of the Act puts an obligation on the person to whom the non-resident
company supply goods and services in Nigeria to remit the tax. Consequently, this places an obligation on
the Appellant to self-charge and remit VAT to the FIRS on the services provided
by the non-resident company to it.
Therefore,
the Tribunal held that the Appellant is liable to pay VAT with respect to the
Management Services provided by SIML.
b.
Whether
the Appellant is liable to pay VAT on the reimbursable expenses incurred by
SIML on services to SIML by third parties.
The Tribunal held that SIML acts as an agent to
all members of SIG and brings contractual responsibilities on them, therefore,
the Appellant is liable to pay VAT on the promotion and marketing costs which
are not reimbursable expenses, but payments made on their behalf by SIML to
third party vendors and therefore vatable.
c.
Whether
the Appellant is liable to pay VAT with respect to services provided by Ikeja
Hotels Limited.
“It
is the considered opinion of the Tribunal that the use of a service provider to
act for and on behalf of the service for the purpose of remitting tax is merely
a convenient administrative process which does not prevent the FIRS from
recovering tax liability in any given instance”.
d.
Whether
the Appellant is liable to pay VAT on its Casino Revenue.
The
Tribunal in its Judgment opined that the services provided by IHL is not on the
exempted list and the Appellant has clearly established that they derive
revenue from owning IHL arising from the positive difference between the
amounts staked and patrons’ winnings. This according to the Tribunal, shows
that the Appellant provides “entertainment” in the form of lottery and gaming
services and therefore, this can be a basis for charging VAT.
“By
virtue of the VAT Act, Entertainment is defined “to include any exhibition and
performance in which admission of people is subject to payment by such
persons”. As already stated above, VAT is chargeable on all goods and services
except those specifically exempted under the Act. The Tribunal further states
that, service in this case is the act of doing something useful for a person or
company for a work performed, pay or paid work by another person. It is clear
from the above that the word “service” alludes to doing something for a fee.
Furthermore, due to the intricacies involved in casinos, the most rational
thing is to allow the Casino to deduct the total winnings paid out, from the
total bets paid in, after which the VAT percentage is applied.
In
light of the above, it is the decision of the Tribunal that, the Appellant is
under legal obligation to pay VAT on its Casino Revenue”.
e.
Whether
the Appellant is liable to pay Interest and Penalties.
[
It
is the view of the Tribunal that penalty and Interest become due once Tax which
ought to be paid is not paid as at when due. The issuance of a demand notice
for the unpaid tax has no effect on penalty and interest which had accrued
prior to the date the tax was due. Therefore, the imposition of interest and
penalty in the additional claim set out in the reassessment is justified.
5.
Case Analysis:
This above discussed Appeal represents the current position of
Nigerian tax with respect to transactions involving NRC’s and VAT on Casino
Revenue. It must be noted that the non-register of a Non-Resident Company for
VAT with the FIRS is not an excuse for a Nigerian/Resident Company to not
self-charge VAT.
The FIRS, according to the TAT is deemed to be the principal tax
collector and taxpayers whose obligation it is to charge, collect and remit VAT
are deemed as agents of the FIRS for tax collection purposes. Under the
well-recognized principal-agent relationship, a principal may do all things for
which he has authorized an agent to do. Therefore, in the instant case, where a
vendor who ought to charge VAT on its invoice failed to do so, the TAT decided
that this failure does not prevent the FIRS from recovering such VAT from the
Company who has enjoyed this service. It is necessary to note that the FIRS
would be prevented from recovering the same VAT from the vendor who failed to
charge VAT on its invoices as to do so would amount to double-taxation.
For Casino Revenues being the subject of VAT, the TAT’s assessment is
simple, to wit, it involves the offering of a VATable service not contained in
the list of excluded items under the VAT Act, hence, subject to VAT. It could
not be clearer than that. Businesses characterized by offering services via
casino and gaming facilities will be subject to VAT.
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