Introduction
With its realisation of the futility of heavy reliance on oil revenue, Nigeria is taking giant strides to refocus its revenue generation strategy by in focusing more on non-oil revenue to alternative sources. This has led to an aggressive tax regime by the Federal Government to ensure that more revenue is derived from taxes. In encouraging tax compliance by tax payers, the Federal Government introduced the Voluntary Assets and Income Declaration Scheme (VAIDS).
There is however a fear of government ignoring the letter of the existing tax laws in its quest to generate more revenue to its coffers by bringing in more taxpayers into the tax net. This fear has in fact become a reality, especially when it comes to real estate.
Recently, a client of ours in the Real Estate Sector was in the process of acquiring a piece of property in the Lekki axis of Lagos. The purchase price had already been agreed, necessary due diligence investigations conducted at the land registry, and title over the property was certified to be unencumbered. The prospective seller of the property issued his invoice to our client for the sale of the land and included Value Added Tax (VAT) of 5% to the purchase price. Our Client was startled by the inclusion of VAT and requested to know the position of the law on VAT on property transactions.
Though Nigeria’s VAT rate of 5% pales in comparison to other countries including the United Kingdom which charges 20%, it makes a difference on large transactions such as property and real estate. The Taxman’s interest in these burgeoning property transactions is not surprising as he seeks to generate revenue for government. But the question that needs to be asked and answered is: is VAT applicable to property and real estate transactions, or are buyers being made to bear an unnecessary unlawful cost?
Understanding VAT vis-à-vis Property Transactions
VAT is a consumption tax that has been embraced by many countries all over the world. Since it is a consumption tax, it is relatively easy to administer and difficult to evade.
The Federal Government’s will to diversify the economy is understandable in the face of the current economic situation of the country. With the fluctuating inflation rates, the single most important aim of Nigeria’s tax policy would be to raise more revenue. Consequently, government through the Federal Inland Revenue Service (“FIRS”) is taking steps to bring into the tax net, real estate and property transactions with a conviction that these transactions are subject to VAT.
But what does the VAT Act have to say about this?
What is VATable under the VAT Act?
As earlier pointed out, VAT is a consumption tax which applies solely to the supply of goods and services. It is a tax levied on value created at every stage of the production and distribution value chain. It must be pointed out however, that the burden of VAT is ultimately borne by the final consumers, as he has to pay higher sum for the goods purchased or services rendered.
