The Federal Inland Revenue Service (FIRS) has issued Information Circular No.: 2021/03 (“the Circular”) on the application of Value Added Tax (VAT) on road tolls, paid parking, access pass, recreational or entertainment parks, admission to events and other related services based on Section 2 (1) of VAT Act, Cap. V1, LFN, 2004 (as amended) (VATA or “the Act”).
We have provided below, a summary of the key aspects of the Circular:
1. Services liable to VAT
The Circular provides that toll gates or points, paid parking, recreational parks, entertainments and other related operations, for which a fee is paid for access or use (“the services”), are liable to VAT in line with the provisions of Section 2 and the definition of “services” in Section 46 of the VATA.
Further, the FIRS noted that where the services are outsourced, VAT will apply on both the commission and fees charged by operators, as they are not VAT-exempt in the First Schedule to VATA.
2. Value of taxable services
The Circular outlines various business arrangements in relation to the services and the applicability of VAT thereon as follows:
Government operated arrangement:
VAT will apply on only the service fee charged to the consumers.
Outsourced operations arrangement:
VAT will apply on both the fee charged to the consumers and the commission earned by the operator.
Build operate and transfer arrangement:
This includes an arrangement where a public facility is built by a private operator with a view to transferring the facility to the government in the future after recouping its investment cost. In this instance, VAT will apply on the fee or toll charged to the consumers by the operator, the commission paid by the government to the operator, and the fee or toll charged by the government after taking control of the facility.
Privately owned facilities:
VAT will apply on the fee and commission charged by a private entity involved in the management or operation of a toll gate/ point, paid parking facility, park or recreational centre.
Admission to events and performances:
The Circular provides that VAT applies on fees charged for admission to events and performances, such as shows, theatrical performances, circus performances, fairs, amusement parks, concerts, exhibitions, or other similar cultural events, sporting events, and educational and scientific events, including conferences and seminars. However, where such events are conducted by or in educational institutions as part of learning activities, teaching and coaching, VAT will not apply on the tickets or fees granting access to the events.
3. Compliance requirements
Operators of the services are required to issue tax invoices that clearly state the service fee and the VAT charged thereon, in line with the provision of Section 13A of VATA, and comply with other filing obligations in the Act.
Toll gates, especially on public amenities, such as roads and bridges, do not constitute a supply of service for VAT purposes. Rather, they are tax-collection mechanisms by the government for the use of such facilities. The Black’s Law Dictionary (9th Edition 2009) defines a “toll” as “a tax or due paid for the use of something, esp., the consideration paid either to use a public road, highway, or bridge…”. Thus, as a toll in itself is a tax, applying VAT on it will amount to charging tax-on-tax.
Therefore, the FIRS should revisit the inclusion of road tolls and access pass for use of public amenities as taxable supplies in the Circular to avoid double taxation.