To put the argument in context, would a consultantin a firm based in Scotland who proffered solution to a business need while in the course of playing golf at St Andrew’s Golf Course in Scotland with an executive of a bank operating in Nigeria for which the firm was handsomely paid, be deemed to have carried on business in Nigeria? Clearly, the consultant has carried on business with a Nigerian company but has not carried on business in Nigeria. From a strict constructionist lens, such a consultant cannot be seen in the eyes of section 10 (1) as carrying on business in Nigeria. Even though we all have a good idea what the intent of the Act is all about, intentions are intentions, and should not be equated with the law. In the absence of a clear definition, the plain English meaning should therefore apply.
Section 42 as amended, on the definition of imported service, constitutes a further complication as to whether, in the above scenario, the payment for service rendered by the firm of consultants is VAT deductible. The section defines imported service as service rendered in Nigeria (emphasis mine) by a non-resident person to a person inside Nigeria. Since the service rendered by the firm was rendered in Scotland, it is perhaps safe to conclude that it is not VATable in Nigeria. This writer however concedes that the meaning of “rendered in Nigeria” may be different in certain circumstances under the scope of imported service as in the case of FIRS Vs Vodacom.To resolve this, more clarity could be brought into that clause by substituting the word “carries on business in Nigeria”with“has business agreement with or renders service(s) to an entity in Nigeria”.
On the second issue whether a Nigerian company has an obligation to ensure that a non-resident company is registered for VAT in Nigeria based on the same section 10(1), it is very doubtful if the law contemplates a third-party obligation with respect to registration for VAT otherwise the law would have expressly stated the role of a Nigerian Company in meeting this obligation;
“a non-resident companythat carries on business in Nigeriashall register for the tax with the Board, using the address of the person with whom it has subsisting contract, as its address for purposes of correspondence relating to the tax”
Again, to the strict constructionists, nothing can be more explicit – the above section of the VAT Act indeed suggests that the duty to ensure that a non-resident company is registered for VAT is that of the non-resident alone, using the address of the Nigerian company only for the purpose of correspondence without any vicarious or contributory liability on the part of the Nigerian Company. But contrary to its strict construction argument on section 2, the FIRS took a purposive view of this section and was upheld by the Court by imputing the intendment of the law.
In my view, to extend this obligation to a resident company by inputting the intendment of the law is to mischievously assume that the draughtsman is unable to clearly express his thoughts, just because he is nowhere near to affirm that his thoughts are as expressed.While the dilemma of tax evasion and avoidance confronting tax administration in enforcing VAT registration requirement by a non-resident company due to absence of legal or physical presence is understandable and may therefore be compelled to seek other measures to enforce compliance, should the tax administration impose an obligation where the draughtsman has not?
Unless expressly stated otherwise, it stands to reason that the duty to register for VAT is solely that of non-resident companies and not that of a Nigerian entity if one is to invoke Rowlett J in the English case ofCape Brandy Syndicate v Inland Revenue Commissioners, who stated that “in a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One has to look fairly at the language used.”Therefore, in interpreting a tax statute, the court must not overly stretch itself to assist the tax collector achieve his goal.
Now to the third and most substantive issue which borders on the duty of a Nigerian company to deduct and remit VAT even when an invoice from a non-resident does not reflect the VAT element. Based on section 10(3) of the Act;
a non-resident company shall include the tax in its invoiceand the person to whom the goods or services are supplied in Nigeria shall remit the tax in the currency of the transaction”.
Again, this sub-section seems to indicate that the inclusion of VAT in an invoice by a non-resident company is a necessary condition for the deduction and remittance of VAT by the person to whom the goods or services are supplied – a Nigerian company. To endorse this view is particularly appealing especially if we agree that the “and” in-between the obligation to invoice and the obligation to remit is a truth-functional connective which presupposes that the fulfilment of the second condition is hinged on the first. Put differently, there is a causal sequence between the obligation to issue VAT invoice and the duty to remit.
Based on FIRS’ inconsistency in its convenient adoption of different rules to construe the meaning of Revenue Acts, it not only took a purposive view of section 10(3) of the VAT Act, the Revenue authority also referenced the International VAT Guideline to argue that the Act imposes a duty on a resident company to ensure deduction of VAT even when an NRC fails to invoice the VATable element on cross-border supplies. While FIRS is at liberty to reference the International VAT/GST Guideline and to take a position based on either the strict construction or purposive approach in the interpretation of tax statutes, the point is, there should be consistency of approach.
- To be continued
Glenn is a tax practitioner.