The Finance Act 2019: Sale of Buildings Not Subject to VAT
It is no longer news
that the amendments made to the existing tax laws by the
Finance Act (“the Act”) have taken effect from 1st February 2020.
Accordingly, the erstwhile
provisions have been discarded and the replacements being implemented. The Act
has helped to clarify some previously ambiguous provisions, one of which
is the sale
of real estate
property other than
land.
Prior to the enactment of the Act, the Value Added Tax Act (“VAT Act”)
provided that goods and services other than those expressly exempted by the
First Schedule of the VAT Act are
subject to VAT. It failed to put into
consideration products which are neither goods nor services, such as land and buildings. The Federal High Court
provided a provisional succour in Momotato
v. UACN where it held that land was
not subject to VAT as it was neither
a good nor a service. The
court however resolved that the developments on the land constitute VATable services
since a building is the product
of a combination of VATable goods and services
and the development of real estate
was not expressly excluded by the VAT Act.
The New VAT Regime
The
Act has defined ‘goods’ as:
“All forms of
tangible properties that are movable,
at the point of supply, but does not include money or securities; and
any intangible
product, asset or property over which a
person has ownership
or rights, or from which he derives benefits, and which can be transferred from
one person to another,
excluding interest in land” (Emphasis ours)
Auspiciously, interest in land has been
excluded from intangible assets which are
subject to VAT, and thus puts paid to
controversies relating to charge of
VAT
on land. The
definition of goods
under the Act
implies that the
movability of tangible assets is the determining factor for charging VAT as it is a trite principle of
interpretation that the expression of one thing is to exclude another.
Therefore, the express mention of movables consequentially exempts all immovable properties such as buildings from VAT.
Although it is observed that the Act did not expressly convey
the intent to exempt
buildings from VAT, as has been done for money and securities, the inclusion
of ‘movable’ in the definition
of taxable goods exempts immovable
tangible assets. In addition,
applying the literal rule of interpretation leads to the
affirmation that the purport of the Act in this regard
is to exempt the sale of buildings and similar properties from VAT, since
they are not movable.
Also, it seems
as though the
Act has taken into
consideration the principle of quicquid plantatur solo, solo cedit – whatever
is affixed to the land, belongs
to the land, since a building cannot
stand on its own; thereby
subjecting the building to the same treatment as the land.
Our Comments
The Act now exempts sale of real property
from VAT, including buildings which are developments on the land,
thereby setting aside
the precedent in the Momotato case and puts paid to the
pending controversies hovering over the subject.
Statistics have shown that the country
is plagued with insufficient housing attributed to various factors
such as accessibility to land, ineffective housing finance, high population growth rate and high cost of houses. According to the Concept Project
Information Document-Integrated Safeguards Data Sheet – Nigeria Affordable
Housing Project of 2018 by the World Bank
Group, the housing deficit in the country
stood at up to 17 million housing units with a growth of
approximately 20% a year, as about
80% of the country’s population are of low-income group, making affordability a
fundamental factor thus hindering sufficient housing. Therefore, this amendment
and the reduced Withholding tax rate
for Construction activities (from 5% to 2.5%) is commendable as it reflects
the government’s attention to
the supplications of its citizenry, particularly
the real estate sector, since
the removal of VAT on the sale of buildings and the reduction of WHT rate would aid in reducing the cost of delivering
housing and consequently alleviate the insufficiency.
Nonetheless, an aggressive tax authority may
want to argue
to the contrary,
that the non-express mention of buildings
or immovable properties, as has been done for Money, Securities and Land, is an indication that that there is
no intention by the Act to exempt
buildings and immovable properties from the
charge of VAT. We believe that the possibility of such
needless controversy could be
permanently diminished by a further review of the amendments in the next
Finance Act.
