By: Chinonso Okafor – Associate, Dispute Resolution OAL
There has been debate in some legal circles as to whether a lawyer or firm of lawyers are duty-bound to pay Value Added Tax (VAT) to the Federal Inland Revenue Service (FIRS) as stipulated by sections 14(1) and 15(1) of the VAT Act, 1993 (as amended) (“the VAT Act”), for legal services they provide their clients. It now appears that this issue is settled in the recent Court of Appeal Judgment in Al-Maseer Law Firm v. Federal Inland Revenue Service, Appeal No. CA/J/179/2018 (Unreported) delivered on May 24, 2019, by Honourable Justice B. M. Ugo (JCA).
The brief facts of Al-Maseer’s case is simply that sometime in May 2016, FIRS wrote Al-Maseer a letter captioned “Non-rendition of VAT Return” wherein the law firm was notified of their duty under the VAT Act to pay a certain amount as VAT to the FIRS for the legal services they provided their clients. Al-Maseer disputed that such duty was cast on it and approached the Federal High Court in Bauchi by way of Originating Summons to determine whether a lawyer and/or law firm is a taxable person within the meaning of sections 2, 3, 14(1), 15(1) and 46 of the VAT Act, liable to pay VAT to the FIRS for legal services they provide their clients. Al-Maseer argued that legal practice is not a business venture or trade within the meaning of section 46 of the VAT Act, and further contended that the duty to remit VAT to FIRS is only applicable to persons that engage in trade or business activities for profit. In response, FIRS argued that Al-Maseer as a law firm was engaged in providing legal services to her clients for profit, and that it is, therefore, a taxable person within the meaning of sections 2, 3, 14(1), 15(1) and 46 of the VAT Act, especially since legal service is not exempted under the First Schedule of the VAT Act.
The Federal High Court agreed with FIRS and dismissed Al-Maseer’s claims on the ground that the list of ‘services’ exempt from paying VAT in the First Schedule of the VAT Act did not include ‘legal service.’ The Federal High Court further held that legal services, unlike medical services and other exempted goods and services under the First Schedule of the VAT Act, are chargeable for the purpose of payment of VAT. Dissatisfied, Al-Maseer appealed to the Court of Appeal.
Court of Appeal’s Decision on Whether Lawyers/Law Firms Should Pay VAT
The Court of Appeal upheld the decision of the Federal High Court and dismissed the appeal after considering sections 1, 2, 3, 14(1), 15(1) and 46 of the VAT Act, that respectively provides as follows:
- There is hereby imposed and charged a tax to be known as the Value Added Tax (in this Act referred to as “the tax”) which shall be administered in accordance with the provisions of this Act.
- The tax shall be charged and payable on the supply of all goods and services (in this Act referred to as “taxable goods and services”) other than those goods and services listed in the First Schedule to this Act.
- There shall be exempt from the tax the goods and services listed in the First Schedule to this Act.
14(1) A taxable person shall on supplying taxable goods or services to his accredited distributor, agent, client or consumer, as the case may be, collect the tax on those goods or services at the rate specified in section 2 of this Act.
15(1) A taxable person shall render to the Board, on or before the 21st day of the month following that in which the purchase or supply was made, a return of all taxable goods and services purchased or supplied by him during the preceding month in such manner as the Board may, from time to time, determine.
- In this Act, unless the context otherwise requires—
“Supply of services” means any service provided for consideration;
“Taxable goods and services” means the goods and services not listed in the First Schedule to this Act;
“Taxable person” includes an individual or body of individuals, family, corporations sole, trustee or executor or a person who carries out in a place an economic activity, a person exploiting tangible and intangible property for the purpose of obtaining income therefrom by way of trade or business or a person or agency of Government acting in that capacity.
In delivering its judgment, the Court of Appeal held that a lawyer or firm of lawyers in private practice provides legal services for a fee, and so are taxable persons bound by sections 1, 2, 14(1), 15(1) and 46 of the VAT Act to pay VAT to the FIRS for legal services they provide. In the words of the Court of Appeal,
“Section 46 of the VAT Act (as amended) puts this issue beyond doubt by its definition of the terms ‘supply of services,’ ‘taxable goods and services’ and ‘taxable person’ which it defined thus: ‘Supply of services’ means any service provided for consideration; ‘Taxable goods and services’ means the goods and services not listed in the First Schedule to this Act; and ‘Taxable person’ includes an individual or body of individuals, family, corporations sole, trustee or executor or a person who carries out in a place an economic activity, a person exploiting tangible and intangible property for the purpose of obtaining income therefrom by way of trade or business or a person or agency of Government acting in that capacity.”
By way of contrast, the Court considered the services that are exempt from payment of VAT under the First Schedule of the Act (i.e. medical services; services rendered by Community banks, People’s bank and Mortgage institutions; plays and performances conducted by educational institutions as part of learning; and all export services), and held that since legal practitioners and law firms are not mentioned therein, that legal practitioners and law firms are taxable persons within the meaning of section 46 of the VAT Act, for purpose of paying VAT to the FIRS for the legal services they provide.
Lessons from the Court of Appeal Judgement
In conclusion, it is safe to say that the notion that lawyers or law firms are not bound to pay VAT to FIRS for legal services they provide has been dispelled by the Court of Appeal in Al-Maseer’s case. In effect, the Judgment is strong on the point that lawyers and/or law firms are taxable persons within the meaning of sections 2, 3, 14(1), 15(1) and 46 of the VAT Act, for purpose of paying VAT to the FIRS for legal services they provide.
