The Tax Appeal Tribunal (TAT or “the Tribunal”) Lagos Zone has ruled, in NGX Real Estate Limited (NGX or “the Company” or “the Appellant”) and Federal Inland Revenue Service (FIRS or “the Respondent”), that rental income derived from real properties are not subject to Value Added Tax (VAT). The decision brings clarity to the interpretation of the term "interest in land". The thrust of this case was whether the interpretation of “interest in land” should extend to building as the Finance Act (FA) 2019 did not define the phrase; though FA 2020 subsequently modified the exemption to goods and services to include land and building.

Background of the Case

NGX is a company engaged in the acquisition, leasing, hiring, and part-exchanging of real property. NGX had classified its rental income as exempt from VAT. On February 18, 2022, the FIRS issued a letter to NGX, alleging that the company had not fulfilled its VAT obligations for the 2020 fiscal year. The FIRS also provided a seven-day ultimatum for NGX to remit the outstanding tax liabilities. Dissatisfied with the FIRS's stance and the failure to resolve the matter, NGX filed an appeal with the Tax Appeal Tribunal, seeking to set aside the assessed tax liabilities.

NGX’s Argument

NGX contended that the FIRS had misconstrued the key provisions of the VAT Act, as amended by the FA 2019, and had erred in imposing VAT obligations on rental incomes derived from real properties. The Appellant, relying on the definition of goods as provided by Section 46 of the Value Added Tax Act (VATA), stated that goods include tangible products which are movable at the point of supply and intangible products, assets, or property which the ownership or rights can be transferred from one person to another but excludes money, securities and interest in land. NGX further relied on the definition of taxable supplies as provided by Section 2(1) of the VATA (as amended by Section 33 of the FA 2019). According to these statutory provisions, NGX submitted that taxable supplies refer to transactions involving the sale of goods or the performances of a service, for consideration in money or money’s worth. The Appellant maintained that taxable supplies regarding goods envisage a sale of taxable goods. Thus, land, not falling into the category of taxable goods, does not fall under taxable supplies. The Appellant also stated that a transaction must qualify as either supply of goods or services for VAT to be applicable on such transaction. Consequently, lease transactions that involve delivering possessory rights to a tenant should not be regarded as taxable supplies. The Appellant drew support from cases such as Newcomer vs. Coulson (1877), Fearn vs. Tate Gallery (2023), and Onagoruwa vs. State (1993) and supplied the definitions of land as stated by the courts in the various cases. 

Regarding the second issue, NGX argued that the FIRS erred in law by imposing interests and penalties on the demand and re-assessment notice when the same was not final and conclusive.