Wole Obayomi

Partner, Tax, Regulatory & People Services

KPMG in Nigeria


The Tax Appeal Tribunal (TAT or “the Tribunal”) sitting in Lagos on 10 September 2020 decided in the case between Ess-Ay Holdings Limited (EHL or “the Appellant”) and Federal Inland Revenue Service (FIRS or “the Respondent”) that rental income derived from the lease of real estate properties, whether for residential or commercial purpose, is beyond the scope of the Value Added Tax (VAT) Act.

Facts of the case

The Appellant is involved in the development of real estate properties which are leased by tenants for commercial and residential purposes. Following a tax audit exercise of EHL’s 2014 to 2016 financial years, the FIRS assessed EHL to VAT on the income derived from its commercial tenants for the above period. The Appellant objected to the assessment and was issued a Notice of Refusal to Amend by the FIRS. Consequently, EHL filed an appeal before the Tribunal seeking a declaration on the applicability or otherwise of VAT on its rental income.

Issues for determination

The Tribunal adopted the following issues which were presented by the Appellant, for determination:

  1. whether rental incomes are subject to VAT under the VAT Act CAP V1 LFN 2004 (as amended); and
  2. whether the provisions of the FIRS Circular No. 9701 dated 1 January 1997 seeking to exempt only rents from residential properties is not ultra vires the Respondent?

TAT decision

After considering the arguments of both parties, the TAT delivered judgement in favour of the Appellant on the following grounds:

  • For VAT to be chargeable, the transaction must qualify as a supply of goods or service.
  • The VAT Act did not define the term “goods”. However, the definition of the term in credible materials affirms that for an item attached to land to qualify as goods, such item must be severable or moveable from the land either before sale or under a contract of sale. Consequently, real properties by their nature do not qualify as “goods”, therefore, a transaction relating to them cannot qualify as a supply of goods.
  • A lease agreement in respect of real properties does not amount to rendering of “service”. Rather, it is a transaction for the transfer of an interest or right of access/ use of the property to the lessor. Further, the right transferred, assigned or granted to the tenant is an incorporeal right, and is not liable to VAT.
  • Rent derived from lease of real properties, whether for residential or commercial purposes, is not a supply of goods or services and is, therefore, not liable to VAT.
  • The FIRS Information Circular No. 9701 titled “Detailed List of Items Exempted from Value Added Tax (VAT)” is not a delegated or subsidiary legislation. Rather, it is an opinion of the FIRS on a point of law which has no legal binding effect. Therefore, non-compliance with the Circular cannot create any liability to the taxpayer.


The TAT’s decision on the non-applicability of VAT on the lease of a building has reaffirmed that non-VATable transactions are not restricted to items listed in the First Schedule to the VAT Act or any administrative document issued by the FIRS.

Further, the decision has nullified the FIRS’ position that a building lease is liable to VAT because it is not specifically exempted in the VAT Act. As decided by the Tribunal, the first step in imposing VAT on any transaction should be an evaluation of whether that transaction qualifies as a supply of “goods” or “service”. This position is consistent with several court judgements on the applicability of VAT on transactions.

Notwithstanding that the TAT decision in this appeal was based on VAT Act, 2004 (as amended in 2007) before its amendment by the Finance Act, 2019, the decision is equally an authority supporting the non-VATability of rent under the VAT Act as amended by Finance Act 2019. This is borne out of our viewpoint on the expanded definition of goods under Finance Act, 2019 reproduced below:

“The Finance Act expands the definition of “goods” to include both tangible and intangible goods. Although examples of “tangible” goods or properties were not provided, the Finance Act provides guidance that such properties must be movable at the point of supply. Hence, it is not clear why the FIRS included building and roads as goods that are liable to VAT in its Circular. Buildings and roads, by their nature, are not movable and their sale or transfer should, therefore, not qualify as “goods” for the purpose of VAT. As a building is not movable, a lease of the building should not qualify as an intangible good for VAT purpose. Interest or right in building and roads is very similar to interest in land, which is exempt from VAT, and should equally not qualify as goods under the VAT Act.” (excerpts from Matters Arising from Implementation of Finance Act, 2019 page 5 ©KPMG, June 2020).

The TAT’s re-affirmation that information circulars issued by the FIRS does not constitute a delegated or subsidiary legislation and have no enforceable legal basis aligns with the principle of separation of power enshrined in the Constitution of the Federal Republic of Nigeria. While the tax authorities may issue guidelines and circulars to provide clarifications on tax matters, such administrative documents must not be used as tools to amend, vary or alter the provisions of the law.

For any enquiries on the above, please contact:

Wole Obayomi