By Chidiebere Okorafor Esq.

INTRODUCTION

The Nigerian governments (federal and states) have demonstrated their determination to make tax a formidable source of revenue in Nigeria lately. We have seen and continue to see robust amendments of the Nigerian tax laws for all species of tax. Value Added Tax (VAT) seems to have received the largest junk of the amendments and the reformation.[1] The Finance Acts of 2019,[2] 2020[3], 2021[4] & 2023[5] repeatedly amended the VAT Act. This piece analyses the new Section 10 of the VAT Act introduced by the Finance Act 2021 vis-a-vis the interpretation of the Section by the Tax Appeal Tribunal (the “Tribunal”) in the recent case of Bolt Operators OU v. FIRS APPEAL NO. TAT/LZ/VAT/074/2022 (“BOLT V. FIRS”) decided on 26th May 2023.

2.THE GIST OF THE NEW SECTION 10 OF THE VAT ACT

The new Section 10 of the VAT Act Cap V11 LFN 2004 (as amended) provides:

(1) For the purpose of this Act, a non-resident person that makes a taxable supply of goods or services to Nigeria shall register for tax with the service and obtain Tax Identification Number (TIN).

(2) A non-resident person shall include the tax on its invoice for all taxable goods or services.

(3) The taxable person to whom the supply of the taxable goods or service are made in Nigeria or such other person as may be appointed by the Service shall withhold and remit the tax to the service in the currency of the transaction.

(4) Notwithstanding the provisions of subsection 1 of this section, a non-resident person that makes a supply of taxable goods or services in Nigeria may appoint a representative, for the purpose of its tax obligations.

(5). The Service may issue a guideline for the purpose of giving effects to the provisions of this section including the form, time and procedure for filing returns and payment by non-resident suppliers appointed by the Service under subsection(3).

The section which applies to Non-Resident Suppliers (“NRS”) both natural and corporate that supply taxable goods or services in Nigeria provides how to tax such NRS. First, a NRS is required to register with FIRS and obtain Tax Identification Number (TIN) for the purpose of VAT for goods or services supplied in Nigeria. Secondly, a NRS is required to include the accruing VAT for goods or services supplied on the invoice issued by the NRS. It seems that the essence of stating the VAT in the invoice is to make for easy ascertainment of the amount payable as VAT for the goods/services supplied which is 7.5% of the total amount paid.[6] Section 10(2) is not clear on whether a NRS is required to charge and collect VAT for subsequent remittance to a FIRS after including same in the invoice. The obscure flows from the first arm of section 10(3) of the Act. That subsection allows the Nigerian Receiver to whom goods/services were supplied by the NRS to withhold and remit VAT to the FIRS (first arm of subsection 3). The second arm of subsection 3 empowers the FIRS to appoint any person else other than the Nigerian Receiver to collect and remit VAT on the goods supplied to the person by the NRS. The Act did not define or delineate such other persons that could be appointed to collect and remit VAT pursuant to S10(3) of the Act. It seems that the FIRS can appoint a NRS to collect and remit VAT. It is this Section 10(3) that arose for interpretation and application in the case under review.

Section 10(4) allows a NRS to appoint a Representative and delegate the duty of collecting and remitting VAT for goods or services supplied to the Representative. It seems that a NRS may not be able to appoint a representative if the NRS was appointed a representative by FIRS under subsection 3.[7] If this view is correct, it then means that a NRS can withhold and remit VAT for goods or services supplied without first being appointed by FIRS. Community reading of sections 10(1)&(2) confirms this view.

Section 10(5) enables the FIRS to issue a guideline for the purpose of giving effects to section. The FIRS issued the Guidelines on Simplified Compliance Required for Non-Resident Suppliers No.2021/19 on 11th October 2021 (the “2021 Guidelines”) pursuant to this section. Amongst others, paragraph 4 of the 2021 Guidelines automatically appoint any NRS who supplies goods or service via Electronic or digital means a tax agent to collect VAT on the goods/supplied and remit same to the FIRS pursuant to Section 10(3) VAT Act. The Appellant finds faults in the 2021 Guidelines and seeks the court to set it aside.

3 BRIEF SUMMARY OF THE FACTS OF BOLT OPERATORS OU V. FIRS

The case of BOLT (“The Appellant”) is that the Appellant is a NRS mobility services supplier in Nigeria and provides services such as ride-hailing and food delivery between independent businesses and consumers in Nigeria. The Appellant narrated that it does not supply goods or services but only helps restaurants/drivers and consumers to connect electronically on the Appellant’s Application platform. The Appellant receives Commission for every successful connection from restaurants and drivers. Consumers pay money directly into the account of the goods or services suppliers. Both the restaurants and the drivers as well as the consumers all reside in Nigeria. The Appellant does not receive monies on behalf of the Suppliers. The Appellant supply the service of linking businesses and consumers only. Consequently, the FIRS (“The Respondent”) in the exercise of the Respondent’s power of appointment under Section 10(3) decided and appointed the Appellant an agent to collect VAT on all invoices processed under the Appellant Application platform. The Appellant appealed against the appointment to the TAT.[8]

ARGUMENTS
At the Tribunal, the Appellant argued that Respondent erred in law when it appointed the Appellant (a NRS) an agent to charge, collect and remit VAT for taxable goods and service supplied by resident businesses to consumers connected by the Appellant. The Appellant contended that it was only liable to pay VAT on the Commission received and that the Nigerian Resident consumers are to VAT for goods or services supplied to them. The Appellant opposed the Respondent’s decision appointing the Appellant (a Non Resident Supplier) to charge, collect and remit VAT for goods or services supplied by restaurant or drivers resident in Nigeria. The Appellant further contended that the 2021 Guidelines issued by the Respondent is ultra vires the provisions of section 10 of VAT Act to the extent that the Guidelines seek to render the Appellant VAT collection agent as that was not the true intendment of the Principal Act. The Appellant argued that the Respondent cannot super-impose agency relationships between the Appellant and the restaurants/ride-hailing drivers. The Appellant also contended that most of the restaurants and the ride-hailing drivers do not earn the N25 million annual threshold required to qualify a person to pay VAT under the Act.[9]

The Respondent on its side maintained that it has the power to appoint anyone an agent to charge, collect and remit VAT for the purpose of Section 10 of the VAT Act. The Respondent argued further that the Appellant is in the best position to collect VAT from the food vendor companies and ride-hailing drivers given that the Appellant is responsible for bringing two together. Finally, the Respondent argued that it has the options of electing between appointing the Nigerian Receiver or any other person including the Appellant as VAT collection agent.

THE JUDGMENT OF THE TAX APPPEAL TRIBUNAL
The Tribunal held that the use of the word, “shall” in section 10(3) of VAT Act makes the section mandatory.[10] The effect of the provision is that the Respondent must appoint a VAT collection agent. According to the Tribunal, the Respondent can either appoint the Receiver of the supplied goods/service as agent or any other person including a NRS such as the Appellant. The Tribunal ruled that Section 10(5) is very wide to accommodate any kind of Guidelines as may be deemed fit to make by the Respondent including the 2021 Guidelines. The Tribunal did not pronounce on the issue that restaurant and the ride-hailing drivers do not earn N25 million annually and therefore not VAT taxable persons under the VAT Act. The Tribunal reasoned that the restaurants and the ride-hailing drivers are the aggrieved persons and not the Appellant. Hence, the Appellant lacked the locus Standi on the issue. The Tribunal further reasoned that a person can be appointed VAT agent if the monies of the VAT taxpayer is in the hands of such person and the person so appointed would be required to pay the assessed VAT from the monies in his hands. Also, the Tribunal thought that it will be a tall order for the Respondent to proceed after each and every restaurant and ride-hailing drivers scattered all over the country to collect VAT.

The Tribunal ruled that the section 10(3) does not state any condition precedent for enforcing the section. And that the section does not require an existing agency between the Appellant and the businesses or ride-hailing drivers before the Respondent can appoint the Appellant as agent of the restaurant or ride-hailing drivers. The Tribunal held the view that the agency appointed may at best be considered agent of necessity. Agency by Necessity because it is practically impossible to appoint VAT agents for all the restaurants and ride-hailing drivers using the Appellant App.

COMMENT
While the decision of the Tribunal that the Respondent has the power to appoint the Appellant an agent accords with the law, some of the reasonings of the Tribunal are not clear. This part discusses the reasoning of the Tribunal and further adumbrate section 10 of the VAT Act.

6.1. Whose Agent is the Appellant?

The parties in their arguments construed the Appellant as VAT agent for the restaurants and the drivers. The Tribunal also assumed the Appellant to be an agent of the restaurants and the drivers. This view does not seem to be the intendment of the Act. For practical purpose, the agent to be appointed by the Respondent is an agent of the Respondent to collect VAT from the restaurants or drivers and not agent of the restaurant or drivers. This view would have dismantled the argument of the Appellant that there was no agency between the Appellant and the restaurants or the drivers. Section 10(3) envisages where a NRS supplies goods or services to a Nigerian Resident Receiver and remits VAT to the Respondent without more on one hand. On another hand, where the Nigerian Resident Receiver fails to pay VAT in which case the Respondent will appoint another person (representative)to collect VAT from the Nigerian Resident Receiver and remit same to the Respondent. Such appointment would at best be considered a Statutory appointment which the Appellant can neither decline nor refuse appointment. The foregoing appears to be the true meaning of section 10(3).

6.2. Monies of the Restaurant/Drivers in the Appellant’s Hands.

The case of the Appellant is that it does not receive payment on behalf of the restaurants and ride-hailing drivers who use the Appellant’s App. The Appellant narrated that payments are made directly to the goods/services supplier (the resturantsandthedrivers). The Tribunal in its judgment held that the Appellant was appointed an agent of restaurants or the drivers because the Appellant was in custody of the monies belonging to the restaurants and the drivers. One wonders how the Appellant came to be in custody of the monies belonging to Restaurants and the drivers. The Appellant’s claim that it does not receive monies for the restaurants and drivers was not contradicted. The finding of the Tribunal that the Appellant had the monies of the Restaurants/drivers and should pay VAT from it cannot be traced to the facts before the Tribunal. It tilts more to the erroneous holding that the Appellant was an agent of the Restaurants/drivers.

6.3. That the Restaurants and the Ride-hailing Drivers are Scattered All Over the Country

The Tribunal amongst others reasoned that the Appellant was properly appointed VAT agent under section 10 (3) of the VAT Act because it would be difficult and tasking for the Respondent to proceed after each of the restaurants and drivers scattered all over the country. This is difficult to accept. The Respondent is the FG institution saddled with the duty of collecting for the FG in Nigeria. Instead of shifting that duty to private companies or individuals, the Respondent should rather be equipped adequately to discharge its duty. Moreover, taxpayers of other heads of tax (e.g income tax, stamp duties, profit tax , etc) are also scattered all over the country. Would it lie in the mouth of the Respondent to contend or will the Tribunal authorise others to assume the role of the Respondent in this other heads of tax on the ground that the taxpayers under these other heads are scattered all over the country?

CONCLUSION
The FIRS is the statutory Body conferred with the power to collect tax on behalf of the Federal Government of Nigeria. The Body enjoys varying powers donated to it by its enabling law (Federal Inland Revenue Service Establishment Act) and a host of other tax statutes in Nigeria. Sections 10(3) & (5) empowers the FIRS to appoint VAT agent for good/supplied by NRS and to issue Guidelines on the method of appointment under the section. The appointment of the Appellant is in order having regards to section 10(3). The 2021 Guidelines issued by the FIRS is proper as the FIRS merely exercised its power to make regulations under Section 10(5). The decision of the Tribunal that the Appellant was properly appointed and that the 2021 Gudieline is rightly made by the FIRS is correct. However, the Appellant is an agent of the Respondent and not that of the Restaurants/drivers.

*Associate at The Law Crest LLP

[1] In 2020, the Attorney General of Rivers State instituted A.G. Rivers State v Federal Inland Revenue Service & Attorney General of the Federation SUIT NO. FHC/PH/CS/149/2020 contending that the Federal Government has no constitutional power to charge and collect VAT. The saga with more political contour than constitutional at the beginning finally blossomed into a full-fledged legal battle at the Federal High Court of Nigeria, Rivers State Division. The suit which was commenced via Originating Summon was determined in favour of the Applicant and the court granted all the eleven reliefs sought by the Applicant particularly that the FG does not have constitutional power to charge tax. The Rivers State House of Assembly immediately passed the Value Added Tax Law No. 4 of 2021 empowering the State’s Internal Revenue Service to collect and charge VAT on behalf of the state. As expected, the FG appealed the judgment and seek to set aside the judgment of the trial Court. In the interim, other states including Lagos State enacted their own VAT Law. Rivers and Lagos have since then began charging and collecting VAT. The Court of Appeal has not delivered judgment on the matter.

[2] See the Finance Act 2019, Part IV, ss 33-47.

[3] See the Finance Act 2020, Part VI, ss 40-45.

[4] See the Finance Act 2021, Part VIII, ss 30-32.

[5] See the Finance Act 2023, Part IX, ss 22-25.

[6] The Value Added Tax (VAT) Act 2004 (as amended), s4.

[7] Delegata potestas non potest delegari (No delegated power can be further delegated).

[8]The Federal Inland Revenue Service is the body conferred with the power to collect all taxes on behalf of the FG. Every state has a body equivalent to FIRS which collects taxes on behalf of that state. Where any taxpayer is dissatisfied with the decision by or assessment of the FIRS, such taxpayer has a right of appeal to the Tax Appeal Tribunal (“TAT” or “Tribunal”).

[9] Section 15 of the VAT Act 2004 (as amended) provides that vat shall be taxed on taxable person only if such taxable person made a taxable supply or expects to make a taxable supply to the tube of 25 million Naira in a calendar year. The 25 million Naira threshold was one of the inclusions of the Finance Act 2019. The Appellant’s contention was that most restaurants and drivers do not make 25 million Naira annually and therefore, they are not caught within the Web of the VAT Act.

[10] There are plethora of cases where the Court held that the word “shall” invokes mandatory meaning. See Zailani v Gumau & 2 Ors [2020] 2 NWLR (Pt.1709)452; See also Maman &Anor V. Bwacha & Ors (2015) LPELR 4}624; See Further General Muhammadu Buhari v Independent National Electoral Commission [2008] LPELR – 814 (SC).