Age-long battle on accrued interest and penalties for VAT settled.

Federal Inland Revenue Service v. MTN Nigeria Communications PLC.

In Nigeria, every tax legislation is made up of four (4) major components, namely:

1. Who or what the tax is imposed on;
2. Rate of the tax;
3. Due date for remittance of the tax; and
4. Penalty for non-remittance.

The Value Added Tax Act (“VATA”) is certainly no exception. Section 15 of the VATA stipulates the due date for remittance of Value Added Tax (“VAT”) to the Federal Inland Revenue Service (“FIRS”).

Every person or entity that has sold goods or offered services which fall within the contemplation of the VATA is liable to remit to the FIRS, the equivalent of 7.5% (formerly 5%) of the value of the goods or services on or before the 21^st of the following month of consumption.  Thus, in the event of failure to remit the VAT due to the FIRS, penalty at the rate of 7.5% (formerly 5%) of the VAT remittable plus interest at commercial rate shall be recovered from the taxable person or entity, after a period of thirty (30) days of a notification from the FIRS.

Certainly, this was the intendment of the draftsman of the VATA. Although, over the years, the VAT regime has suffered a series of challenges; as taxable persons and entities liable for non-remittance of VAT have hidden under the provisions of various Laws to avoid paying interests and penalties on VAT due and payable to the FIRS.

Thankfully, the Federal High Court per Honourable Justice A. O. Faji in delivering its Judgment in APPEAL NO: FHC/L/1A/2024: FEDERAL INLAND REVENUE SERVICE v. MTN NIGERIA COMMUNICATIONS PLC (“Appeal”), laid to rest the issue of when interests and penalties become due and payable on VAT not remitted at the due date, as prescribed under the VATA.

The Appeal was filed by the FIRS against the decision of the Tax Appeal Tribunal (“TAT”) delivered on the 20^th day of October 2023 particularly, dismissing the claim of the FIRS for interests and penalties on VAT which the TAT had rightfully held that the Respondent– MTN Nigeria Communications Limited (“Respondent”) was liable to remit to the FIRS. Interestingly, though the TAT had in its Judgment found that the services rendered by the Respondent fell within the contemplation of the VATA, it refused the claim of FIRS for interests and penalties due on the VAT so assessed. The TAT in its decision relied on the provisions of the Companies Income Tax Act (“CITA”) and FIRS Establishment Act; particularly Section 76 of CITA and 13(2) and (3) of the 5^th Schedule to the FIRS Establishment Act, in refusing the FIRS’ claim; stating that the interests and penalties were not “final and conclusive”; and as such, not due on the VAT so assessed.

It is true that under the CITA, an assessment becomes final and conclusive when no valid objection is raised or lodged against it within 30 (thirty) days or such longer period as permitted by the Tribunal, and under the FIRS Establishment Act, penalty and interest begins to accrue only after an assessment is final and conclusive (that is, the taxpayer does not object to the FIRS’ notice or appeal against the assessment).

Even so, the TAT had failed to take cognizance of the fact that the subject of the appeal before it was VAT and not Company Income Tax. As such, the provisions of the VATA applied specifically to the assessment and not the CITA. The CITA and VATA, though applicable to the Respondent, are distinct statutes that regulate different kinds of taxes.

In its judgment delivered on the 24^th day of January 2025, the Federal High Court per Hon. Justice A. O. Faji held that:

“Suffice it to say that the final decision amounts to denying the government of tax and allowing the respondent to benefit from its own wrongdoing and that is not allowed. In any event, CITA does not regulate VAT and cannot be dragged into the matter of VAT…

If the tax is due, should the taxpayer not pay interest and penalty for the period when he did not pay the tax?

…

Once tax becomes payable, interest and penalty must follow.”.

Certainly, this is a Landmark Judgment which settles the dispute on when interest and penalty on tax assessed to be due, accrues.

Our Litigation and Dispute Resolution team, led by Soibi Ovia, FCIArb.(UK) is proud to have worked with the Federal Inland Revenue Service in achieving this significant legal milestone.

Click here to read the full judgement on the “Age-long battle on accrued interest and penalties for VAT settled.”