On May 24, 2019, the Court of Appeal (the Court) in the case of Al-Maseer Law Firm v Federal Inland Revenue Services , held in a unanimous decision that lawyers in private practice are under a legal obligation to collect Value Added Tax (VAT) from clients and remit same to the Federal Inland Revenue Services (FIRS).
The Court further held that registration under the Value Added Tax Act, Cap VI, LFN 2004 (as amended) (VAT Act or the Act), is not per se a precondition for payment of VAT.
The implication of this decision is that the FIRS may issue a demand notice on a legal practitioner or any other taxable person to make returns on VAT; it is immaterial whether the taxable person is registered as a VAT collection agent and/or collected VAT from the consumers of his goods and services.
In arriving at its decision and dismissing the Appellant's appeal, the Court, like the Federal High Court (the Lower Court), failed to consider the issue of registration which formed the fulcrum of the Appellant's application challenging the demand notice issued on her by the FIRS.
The Appellant had argued that being a legal practitioner, the Act does not apply to her, and that assuming but without conceding that the provisions of the Act applied to her, having not registered with the FIRS as a VAT collection agent; it was illegal for the FIRS to serve on her a demand notice for VAT return.
This, therefore, raises certain questions as to whether the Court was right:
- In failing to consider the issue of registration raised by the Appellant and consequently holding that registration per se is not a precondition for payment of VAT
- In holding that a resolution of the issue of registration was not necessary for the determination of the Appellant's liability to VAT return?
Summary of the Court of Appeal's Decision in Al-Maseer Law Firm v. Federal Inland Revenue Services
The Appellant was served with a Best of Judgment (BOJ) Assessment by the FIRS for the return of VAT collected by her from her clients for the period covered by the demand notice served on her. Upon been served with the BOJ assessment, the Appellant objected to this assessment and subsequently filed an action at the Federal High Court, seeking via an Originating Summons the determination of the following questions:
- Whether or not by virtue of the provisions of Section 8 of the VAT Act Cap VI 2004 (as amended) legal practice is a business venture and thus required to register with the Federal Inland Revenue Service Board for the purpose of collecting tax as its agent and remitting the amount collected on a monthly basis?
- Whether or not a legal practitioner duly called to the Nigerian Bar and who practices as such falls within the class of person's contemplated under Section 46 of the VAT Act to bring her under any obligation to render VAT returns in compliance with Section 15 of the Act?
- Whether or not the purported letters served on the Plaintiff demanding it to render monthly VAT returns not being a business venture is irregular and of no legal effect whatsoever?
It was the case of the Appellant that she never registered as a VAT collection agent for the Respondent as she does not engage in business for the purpose of making profit, and thus she does not need to register as a VAT collection agent to the Respondent.
The Appellant also stated that the provisions of the VAT Act have no relevance to the Appellant, being a legal practitioner and do not affect her in anyway.
In defence of its BOJ assessment served on the Appellant and in opposition to the Appellant's application, the Respondent filed a counter affidavit outlining the details of the Appellant's registration with the Respondent and the consequent generation of a VAT Identification Tin Number for the Appellant.
The Respondent also stated that it was the failure of the Appellant to file her VAT returns that necessitated the service on her of the BOJ assessment.
The FIRS further contended that the provisions of the Act are applicable to the Appellant since her services are not amongst the services exempted under the Act. The Appellant, however, denied the fact of her registration as alleged by the Respondent by filing a further and better affidavit.
The Lower Court in its Judgment agreed with the Respondent's position that the Appellant is a taxable person within the contemplation of the Act and consequently dismissed the Appellant's case. Dissatisfied with the Judgment, the Appellant appealed to the Court of Appeal on three grounds from which two issues were distilled for determination to wit:
- Whether the trial court was right when it held that she is not exempted from registration with the Respondent for the purpose of charging or collection of value-added tax on the professional fees she collects from her clients?
- Whether the trial court was right when it held that Respondent had statutory power to demand payment of VAT from her?
In resolving the issues against the Appellant & dismissing the appeal, the Court of Appeal affirmed the decision of the Lower Court holding that the Appellant is not exempted from registration, and being a taxable person under the VAT Act, she is liable to VAT returns under the Act as the FIRS had the statutory power to demand payment of VAT from the Appellant. The Court held further that:
"As for the issue of the lower court's alleged failure to decide whether Appellant actually registered with the Respondent, I do not see how that impacts negatively on the decision of the lower court in real terms, for there is nothing in the Vat Act that suggests that registration by a taxable person per se is a precondition for payment of VAT and or that the duty to pay VAT does not arise until a taxable person is registered. Besides, a resolution of that "issue" was not even necessary for a proper determination of the three questions Appellant posed in her originating summons for determination".
The Law on Liability to VAT Collection and Return
Section 1 of the VAT Act provides that:
"There is hereby imposed and charged a tax to be known as the value-added tax (in this Act referred to as "the tax") which shall be administered in accordance with the provisions of this Act".
Section 2 of the VAT Act provides that tax shall be charged and payable on the supply of all goods and services otherwise referred to in the Act as "taxable goods and services" other than those goods and services listed in the first schedule to the Act.
By virtue of Section 3 of the Act, goods and services listed in the First Schedule to the Act are expressly exempted from the application of the Act. In effect, VAT is payable on the supply of all other goods and services not listed in the First Schedule. A taxable person is defined under Section 46 of the Act as:
"taxable person include an individual or body of individuals, family, corporations sole, trustee or executor or a person who carries out in a place an economic activity, a person exploiting tangible or intangible property for the purpose of obtaining income therefrom by way of trade or business or a person or agency of Government acting in that capacity."
A review of the aforestated provisions of the VAT Act reveals that the Court was right in holding that legal services by a private legal practitioner, not being amongst the goods and services exempt under the Act is not exempted by the provision of the Act. It is my considered opinion that the contention of the Appellant in that regard was rightly rejected by the Court.
The second limb of the Appellant's appeal hinged on the BOJ assessment served on her by the FIRS demanding that she make returns on the VAT collected from her clients.
It was the argument of the Appellant that she never registered with the FIRS as a VAT collection agent, and that having not registered, the FIRS cannot legally issued a demand notice on her to make a return on what she had not collected.
In opposing the Appellant's contention that she did not register with the Board, the Respondent stated that the Appellant did register with the Board consequent upon which a VAT Identification Tin Number was generated for her.
Unfortunately, in the instant case, the Court did not consider the issue of registration raised by both parties but rather, hastily dismissed the Appellant's appeal, thereby abdicating from its primary duty.
It is trite that the role of a court is to try all issues, evaluate the evidence, make findings and come to a conclusion one way or the other. A court of law ought to guard against the abandonment of its traditional and constitutional role of being an umpire between parties to a dispute.
In the paragraphs below, I shall consider the issue of the requirement of registration by a taxable person as a precursor to the collection of VAT on behalf of the taxing authority
Requirement as to Registration
Section 8 of the VAT Act provides that:
- A taxable person shall within six (6) months of the commencement of this Act or within six months of the commencement of business whichever is earlier, register with the Board for the purpose of the tax.
- Without prejudice to the provisions of section 32 of this Act, a taxable person who fails or refuses to register with the Board within the time specified in subsection (1) of this section shall be liable to pay as penalty, an amount of
- N10, 000 for the first month in which the failure occurs, and
- N5, 000 for each subsequent month in which the failure continues.
Furthermore, whilst Section 9 of the VAT Act requires Government Ministries, etc. to register as an agent of the Board for the purpose of the tax; non-resident companies are by Section 10 of the VAT Act mandated to register with the Board for the purpose of the tax. The law requires a taxable person who makes a taxable supply, to in respect of that supply; furnish the purchaser with a tax invoice containing certain information amongst which are: taxpayers identification number (this is issued by the FIRS upon registration by a taxable person) and VAT registration number.
By the provisions of the Act, a tax invoice is to be issued on supply whether or not payment is made at the time of supply. Consequently, a taxable person is required to render to the Board returns on all taxable goods and services purchased or supplied by him.
Where a taxable person fails to render returns or renders incomplete or inaccurate returns, the law empowers the Board to assess, to the best of its judgment, the amount of tax due on the taxable goods and services purchased or supplied by the taxable person.
The provisions of the VAT Act reproduced below give a clear idea as to the intendment of the Act with respect to registration by a taxable person.
Section 29 provides that:
"A person who fails to issue a tax invoice for goods sold or services rendered, is guilty of an offence and liable on conviction to a fine of 50% of the cost of the goods or services for which the invoice was not issued".
Section 31 provides that:
"A person who, other than-
- a person registered under this act; or
- a person authorized to do so under this Act;
issues an invoice purporting to be attributable to tax, is guilty of an offence and is liable on conviction to a fine of N10, 000 or imprisonment for a term of six months".
Section 32 provides that:
"A taxable person, who fails to register under the Act, is guilty of an offence and liable on conviction to a fine of N5, 000 and, if after one month, the person is not registered, the premises where the business is carried on shall be liable to be sealed up".
In broad strokes, a combined reading of Sections 13, 29, 31 and 32 of the Act, evinces that only a taxable person registered under the Act can legally collect VAT for goods and services supplied and make returns to the FIRS.
Where a taxable person fails to register after the commencement of business, such a person is liable, upon conviction, to the penalties stipulated under the Act, to wit: payment of a fine of N5, 000 and the sealing of the business premises, where the taxable person fails subsequently to register after one month.
The Act does not in any way empower the FIRS to issue a BOJ assessment on an unregistered taxable person under the Act; especially where the collection and/or return of VAT charged on goods and services supplied is in issue.
It is my view that the Court of Appeal ought to have resolved the issue of registration raised by the parties before proceeding to determine the liability of the Appellant to the notice served on her by the FIR.
It is also my considered opinion that contrary to the view expressed by the Court, the issue of registration as canvassed by the Appellant was very much relevant in the determination of her liability to VAT return.
It is not a recondite principle of law that the provisions of a statute should not be read in isolation of the other parts of the statute. This is because in order to determine the intendment of the makers of a statute, the statute should be read as a whole, and each clause construed together in ensuring the discovery of a consistent meaning of the whole.
Extrapolating from the foregoing, the decision of the Court of Appeal in Al-Maseer Law Firm v. FIRS, to the effect that registration per se is not a pre-condition for VAT collection and return is founded on a sinking and hasty construction of the intendment of the VAT Act.
Under the VAT Act, whereas registration is not a precondition for payment of VAT, it is, however, a precondition for VAT collection and returns by a taxable person, which was an issue in the case under review.
It is hoped that if and when the Supreme Court is called upon, the apex Court would answer this question definitively and leave no room for doubt or speculation as the decisions of the Lower Court and the Court of Appeal have done.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.