June 21, 2023
On 26 May 2023, the Tax Appeal Tribunal (TAT or “the Tribunal”) sitting in Lagos State delivered a ruling in the case of Bolt Operations OU (“Bolt” or “the Company”) v Federal Inland Revenue Service (FIRS) on the validity of the decision of FIRS to appoint Bolt as an agent for the collection of VAT, by virtue of its powers under Section 10 of the Value Added Tax (VAT) Act (as amended). The Tribunal, ruling in favour of the FIRS, held that the FIRS acted within the provisions of the law and validly exercised its powers to appoint Bolt as an agent of collection of VAT from the activities of food vendors and ride-hailers that use Bolt’s platform for meeting customers’ needs.
Bolt is an Estonian mobility service company with a range of services including the facilitation of ride-hailing and food delivery between drivers/independent businesses and customers/consumers in several countries, including Nigeria, through its software application platforms.
In 2021 and 2022, the FIRS, being the revenue collection agency of the Federal Government, wrote letters to Bolt mandating the Company to charge and collect VAT on all invoices processed through its platform. To buttress its position, the FIRS relied on the provisions of Section 10 of the VAT Act and its Guidelines on Simplified Compliance Regime for VAT for Non-Resident Suppliers (“the Guidelines”) to state that whether or not Bolt was the supplier of the goods or services offered by independent businesses on its platform, the Company was mandated to charge and collect VAT on all invoices processed through its platform.
Bolt, in its response, explained that it is a Non-Resident Supplier/Company (NRS/NRC) and operates a model of matching/connecting independent businesses (restaurants and transporters) with individuals (customers/consumers). It also maintained that the drivers who use its platform are not employees but rather independent providers of transportation services. Furthermore, the Company clarified that the drivers earn their fees directly from the passengers while the company only earns a percentage of the fees as commission. Similarly, restaurants earn their income from the food sold to customers on which Bolt earns a commission.
Bolt’s position is that its only taxable supply is the service of connecting riders/restaurants with consumers (which it receives a commission for) and that the service is separate and distinct from the service provided by drivers and restaurants.
Based on the above position, Bolt filed an appeal before the Tribunal on 6 July 2022 against the decision of FIRS to appoint the Company as an agent for collection. The crux of the issues for determination before the Tribunal was whether the FIRS was right in appointing Bolt as a VAT collection agent on all transactions processed through its platform.
The Tribunal, ruling in favour of the FIRS on all issues, held that the FIRS had acted within the provisions of the law in appointing Bolt as a VAT collection agent on the said transactions through its platform. Specifically, the Tribunal relied on Section 10(3) of the VAT Act to hold that the VAT Act does not impose any condition precedent for the FIRS to invoke its powers to appoint a person as an agent for the collection of VAT. The Tribunal, citing the use of the word “shall” in Section 10(3) VAT Act, held that such obligation imposed on such persons appointed by the FIRS is mandatory.
In addition to the above, the Tribunal upheld the validity of the Guidelines issued by the FIRS as guidance to the provision of Section 10(3) of the VAT Act on how returns should be made as to the form, time and procedure for filing returns and payment by NRS appointed by the Service.
Furthermore, the Tribunal, examined the legality of the appointment of Bolt as the party responsible for charging VAT on taxable supplies made by persons (drivers) who do not meet the VAT filing threshold and are therefore exempt from VAT obligations by virtue of Section 15(2) VAT Act. It held that the right to challenge the decision to appoint Bolt as an agent of collection on the ground of that exemption, does not lie with the Company but rather with the food vendors and ride-hailers on the Company’s platform.
This decision of the Tribunal appears to grant the FIRS unfettered powers to appoint any person as a collection agent in respect of VAT. By implication, the FIRS is not constrained to perform any kind of practicality or capacity check, conditional vetting, or even consider the business arrangements or reputational perception of a person it intends to appoint as a collection agent.
In analysing the judgment of the TAT, it is important to note that Section 31 of the FIRS (Establishment) Act (FIRSEA) empowers the FIRS to appoint any person, by notice in writing, to be an agent of a taxpayer, where such person is in custody of any money belonging (or due) to the taxpayer. It is, therefore, our view that the provisions of the FIRSEA reveal the intention of the drafters with respect to the appointment of agents for the collection of VAT or taxes generally. This is because it will be a herculean (if not impossible) task to request persons who do not hold or are not in possession of monies due to the taxable person to be able to act as collection agents to withhold and remit any tax on behalf of such taxable persons. More so, Section 68 of the FIRSEA provides for the clear supremacy of the FIRSEA over other tax laws including the VAT Act. Hence, the provision of the VAT Act that seemingly grants the FIRS unfettered powers to appoint any person as an agent for VAT collection should be further scrutinized or questioned.
The Tribunal’s decision in our view merely adopts a layman or literal interpretation approach, without adopting a practical or contextual approach in interpreting the provisions of the VAT Act regarding appointment of agents. It seems to have avoided an enquiry as to how practical the decision is for businesses that merely provide platforms for vendors and customers to operate, such as ride-hailing services or indeed any other companies with a similar business model to Bolt. Given that Bolt does not in fact have custody of ‘all’ monies belonging to restaurants/drivers since some transactions it facilitates are carried out using cash which is paid directly to the restaurants/drivers, what could be the expectation of the FIRS on the remittance of VAT on such transactions?
Another point to consider in this decision is the validity of effectively deeming an NRS (or indeed anyone) as a supplier of goods and services provided by another person on its platform, for VAT purposes. This is supported by the provisions of Paragraphs 5.4 and 5.5 of the Guidelines which provides that a supply made by a Nigerian supplier that is facilitated by a platform or intermediary owned by an NRS is effectively deemed to have been provided by that NRS/Intermediary for VAT collection purposes. Some may argue that this provision is ultravires the powers of the FIRS and amounts to some form of executive legislation since it goes beyond the scope of what was provided for or intended under Section 10(3) of the VAT Act.
While this decision seems to raise more questions than answers, NRS’s that run a similar business model to Bolt are advised to engage with professional tax consultants with respect to structuring their business operations and liaising with the FIRS in view of this decision, pending the determination of a successful appeal (if any) before a superior court of record, should such appeal be filed. Andersen will follow developments in this regard and issue a commentary where there is a significant development in this regard.