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What You Need To Know About Value Added Tax (VAT) In Nigeria

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VAT is a tax on the supply of goods and services which is eventually borne by the final consumer but collected at each stage of the production and distribution chain. It is eventually borne by the final consumer, (however sometimes multiple layers do bear part of the burden e.g. VAT on tax on services and fixed assets)

The standard rate of tax is currently 5% of invoice value of goods and services except items specifically stated as exempt or zero-rated. The VAT system in Nigeria is administered by the Federal Inland Revenue Service (FIRS). All existing manufacturers, distributors, importers and suppliers of goods and services are required to register for VAT. The prospective VAT payer will obtain and complete VAT registration (and return it to the nearest FIRS Tax Office. A permanent VAT registration number is then issued to the tax payer.

Liability to VAT arises when the output VAT is more than the input VAT. The net VAT in a tax period is the amount to be remitted to the FIRS. Output VAT is the VAT that is due on VATable supplies. It is derived by multiplying the value of the aggregate supply by the tax rate, while Input VAT is what is charged on business purchases and expenses. These include goods and services supplied in Nigeria or imported.

The VAT system in Nigeria has an in-built refund or credit mechanism which eliminates the cascading effect that is a feature of the retail sales tax. The input-output tax mechanism in VAT also makes it self-policing. In essence, it is the Output tax less Input Tax that constitutes the VAT payable and it is the equivalent of the VAT paid by the final consumer of the product that will be collected by the government.

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Although VAT is a multiple stage tax, it has a single effect and does not add more than the specified rate to the consumer price no matter the number of stages at which the tax is paid.

Tax Invoice and VAT

A Tax Invoice is similar in many ways to a normal sales or purchases invoice, except that it has provision for VAT registration number and VAT payment at the prescribed rate. Every taxable firm has a duty to issue a tax invoice for every single Vat able transaction carried out by the business.

Whenever a person supplies VATable goods or services to another person he must issue a Tax invoice in support of the transaction. The customer also needs the Tax invoice to support his claim for Input VAT.

Tax invoices are to contain the following information:

  • Taxpayers Identification Number (TIN);
  • Name, address and VAT registration number;
  • Customer¡¦s name and address;
  • Type of supply;
  • A description of the goods and services supplied;
  • Quantity of goods or extent of services;
  • The rate of VAT;
  • The rate of any cash discount offered; and
  • The total VAT payable.

Goods on which VAT is Applicable

Locally Supplied Goods: VAT is chargeable on the supply on goods and services in Nigeria, except goods and services that are specifically exempted.

Imported Goods: VAT will be charged on non-exempted imported goods into Nigeria irrespective of whether or not:-

  • the goods have to attract customs duties; and
  • the person importing the goods is registered for VAT

The VAT chargeable is in addition to customs duties and other charges that may be done. The value of such imported goods includes all the duties and charges that may be made.

Imported Service: VAT is payable on services received from outside Nigeria if such services are supplied to a Nigerian customer.

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Goods Exempted

(a) Medical and pharmaceutical products;

(b) Basic food items;

(c) Books and educational materials;

(d) Newspapers and magazines

(e) Baby products;

(f) Commercial vehicles and their spare parts, and

(g) Agricultural equipment and products and veterinary medicine;

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(ii) Services Exempted

(a) Medical Services;

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(b) Services rendered by Community Banks, Peoples Banks and Mortgage Institutions; and

(c) Plays and performances conducted by educational institutions as part of learning.

Exported Goods: All exported goods are zero-rated, that is, such goods are VATable but at zero percent. This means that no VAT is collected from the foreign buyer and at the same time any input tax is refundable.

Points to Note

  • VAT is a tax on spending. The tax is borne by the final consumer of goods and services because it is included in the price paid.
  • The tax is at a flat rate of 5%.
  • The tax is collected on behalf of the Government by businesses and organizations which have registered with the Federal Inland Revenue Services (FIRS) for VAT purposes,
  • A business or organization which has registered for VAT is classified as a “registered person”. Such persons will pay 5% VAT on goods and services purchases but can claim credit for this tax (called input tax) when sold.
  • 5% VAT (called output tax) is included in the price of all goods and services supplied by registered persons.
  • The registered person has to make regular VAT returns and either pays to, or receives from the FIRS, the difference of the input tax and the output tax.
  • VAT returns (and payments) are normally made monthly to the FIRS on or before 21st day of the month next following that in which the supply was made.
  • To claim a credit for Input VAT, a registered person must hold a “Tax Invoice”.
  • Records and accounts have to be kept to aid VAT administration and as support documents in the event of an audit.

The Author Asabi Vincent is a tax consultant and a Senior Content Partner with Nairametrics

 

25 Comments

25 Comments

  1. Aide

    September 13, 2014 at 9:26 am

    Good post. I’m sure that a similar one on withholding tax would be equally appreciated by many, myself included.

  2. Anonymous

    November 2, 2014 at 8:18 pm

    thank you

  3. Anonymous

    March 22, 2016 at 1:30 pm

    Please sir, Is petroleum products qualify to charge vat?

  4. Anonymous

    June 15, 2016 at 2:55 pm

    pls sir i need to know how to go about calculating vat on my boutique business

  5. Makanjuola Oki

    December 2, 2016 at 12:14 am

    What are the services VAT able to educational institution?

  6. Oladipupo Hammed

    April 26, 2017 at 3:00 pm

    Is tuition fee vatable?

    • Shiv C Sharma

      March 13, 2020 at 4:13 pm

      NO

  7. Chidozie

    November 13, 2017 at 9:52 am

    Is exported services vatable?

  8. lawalthb

    January 31, 2018 at 7:33 pm

    good article, thanks
    I wish to know what will happen if FIRS come to a company that supposed to be including vat in her invoice but not included?

    • Shiv C Sharma

      March 13, 2020 at 1:44 pm

      A person who fails to issue tax invoice for goods sold or services rendered is guilty of an offence and liable on conviction to a fine of 50% of the cost of the goods or services for which the invoice was not issued.

  9. NANYAK RIMBUT

    February 6, 2018 at 5:23 am

    does a public television/radio pay VAT tax/

  10. NANYAK RIMBUT

    February 6, 2018 at 5:28 am

    PLEASE HOW DOES ONE DETERMINE THE VAT FOR A TELEVISION STATION/

  11. anonymous

    February 19, 2018 at 12:30 pm

    THANKS FOR THIS ENLIGHTENING PIECE. CAN A LTD COY DEDUCT VAT FROM A SECURITY COY THAT IS ALSO A LTD COY ON SERVICES PROVIDED BY THE LATER?

  12. Ofor Oti

    June 29, 2018 at 10:21 am

    As a Bet9ja agent am I supposed to pay VAT on my commission from Bet9ja. Our business involves collecting wagers from punters on behalf of Bet9ja. Each wager is N100 which is passed on to Bet9ja in full. So my thinking is that if there is a VAT element in the N100, FIRS should collect that from Bet9ja and not ask me to pay VAT on my weekly commission. Kindly advise. If they were asking for PAYE on my commission which I already pay to the state I will understand.

  13. Kingsley

    August 22, 2018 at 3:10 pm

    Can I file VAT even when suppliers invoices does not carry VAT value?
    MY suppliers does charge vat on their invoice

    • Shiv C Sharma

      March 13, 2020 at 1:47 pm

      No, If you dont have vat calculation in your tex invoice from supplier then you cant claim it. You must receive VAT invoice from supplier.

  14. Busari Qudus

    March 11, 2019 at 9:41 am

    Thanks for this wonderful article. However, I’ve the following questions, which are not addressed in the article.

    I’ve a business that’s VATable, but I haven’t registered for VAT ever since commencement (February, 2017). Am I open to any sort of penalty? Can I still register for VAT?

    • Alfred Akuki

      March 13, 2019 at 10:44 am

      Busari, since your company is over 18 months, asked to pay the outstanding VATs and also a penalty, and yes you can still register. If you had taken the tax amnesty window of VAIDS, you could have skipped the penalty.

  15. Harrison

    April 10, 2019 at 12:09 am

    Our company deal on acquisition of scrapped mental and iron, are we supposed to pay VAT for every purchase we make?
    I really want to know

  16. Eze Emelike ogwuru

    April 26, 2019 at 9:28 pm

    What happens when a supplier of goods/services does not include VAT on their invoice?
    What should the customer do?

  17. Alex Ogundadegbe

    September 14, 2019 at 12:16 pm

    Which products specifically are to be affected by VAT? That is the question to be answered

  18. Oluwatoni

    October 8, 2019 at 10:47 am

    Does the final consumer pay VAT on baby products ?

  19. Anonymous

    January 21, 2020 at 11:22 am

    Comment: thanks for this article. my question is, does it mean that the companies that pays v
    VAT receives a certain amount of money from the FIRS which is their input VAT? please clarify be on this.

    • Shiv C Sharma

      March 13, 2020 at 4:20 pm

      YES, if your input vat is more than output vat then defiantly you can claim that or adjust further, your Vat return form 002 gives you option for that too..

  20. Afolabi olabayo

    August 10, 2020 at 5:12 am

    Highly in formative, thanks sir.

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Coronavirus

WHO insists on its COVID-19 transmission guidance despite US new draft change

WHO has once again dismissed warnings by the United States’ CDC that the Coronavirus could be transmitted through airborne particles.

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Dr Tedros Adhanom, Head of the World health organization (WHO), COVID-19

The World Health Organization (WHO) disclosed on Monday that it has not changed its policy on the aerosol transmission of the coronavirus disease, after United States health officials mistakenly drafted new guidance, warning that it could be transmitted through airborne particles.

While making the disclosure in a press briefing, the Executive Director of WHO’s Emergency Programme, Mike Ryan, said that he would follow up with the US Centers for Disease Control and Prevention (CDC) in the next 24 hours, after it said COVID-19 could spread through airborne particles that could remain suspended in the air and travel beyond six feet.

In a briefing, Mike Ryan said, “Certainly we haven’t seen any new evidence and our position on this remains the same.”

Nairametrics had earlier reported that the WHO while providing an update on the mode of transmission of SARS-CoV-2 (the virus that caused the Covid-19) from infected people, revealed that based on new scientific evidence, the coronavirus can be transmitted indoors by droplets in the air.

The UN health agency, in a scientific brief, said that people who spend time in crowded places with poor ventilation are at risk of being infected by the coronavirus as the droplets circulate throughout the air in indoor gatherings.

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The CDC said that a draft version of changes to its recommendations were posted in error on its website, while it was in the process of updating its guidance.

It, however, said that the guidance would be reposted as soon as it had completed the review.

The CDC previously disclosed that the virus mainly spread from person to person through respiratory droplets when a sick person coughed, sneezed or talked.

The WHO’s Ryan said the agency still believes the disease is primarily spread through droplets, but that in crowded closed spaces with inadequate ventilation, aerosol transmission can occur.

He said, “We still, based on the evidence, believe that there is a wide range of transmission modes.”

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Business

Agriculture vs Unemployment: Buhari’s farming policy has a major flaw

How workable is Buhari’s plan to send able-bodied young people to the farms as a way of solving unemployment in the country?

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Does sending "able-bodied youths" to the farms increase productivity?, Agricultural financing, Top AgriTech deals currently on sale in Nigeria – June 2020

Two weeks ago, President Muhammadu directed that food and fertilizer importers should not be given access to foreign exchange by the CBN.

The President added that Nigeria has lots of young people (median age of 17.9), hence, agriculture is a means to solve unemployment among youths. 

“We have a lot of able-bodied young people willing to work, and agriculture is the answer,” the President said.

However, Nigeria’s problem in Agriculture is not a lack of personnel, but a problem with productivity. 

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Is productivity related to manpower in other countries? 

The Netherlands is Europe’s largest agriculture exporter, boasting of Europe’s most advanced agriculture sector. In 2019, the Netherlands exported €94.5 billion worth of agricultural goods. That is a 4.6% increase in the €90.4 billion export figure for 2018. Around two-thirds of this growth is due to an increase in export prices, while a third is due to higher export volume.  

In 2019, the Netherlands had a labour force of 9 million, and just 2% of that figure is employed through agriculture. Meaningless than 300k people produce €94.5 billion worth of agricultural exports in 2019. 

What about other emerging economies? 

Comparing Nigeria to the Netherlands does not paint a proper picture as the latter is a typical first world nation with most of the labour force out of agriculture.

However, other emerging economies also have large agriculture sectors, which could be comparable to Nigeria’s. 

The top 4 rice exporting nations of 2019 were India ($7.1 billion), Thailand ( $4.2 billion), USA ($1.9 billion), and Vietnam ($1.4 billion). 

The United States is the only top 4 exporting rice nation that is not regarded as an “emerging economy.”  

(READ MORE: Lessons Nigeria can learn from Microsoft’s Global Skills Initiative)

Does agriculture play a major role in their economic workforce/ productivity? 

India: The Asian giant has a labour force of 494 million, of which 44% are employed in agriculture, the Industry employs 23% of Indians while the Service economy employs 31% of Indians. 

However, despite being the world’s largest exporter of rice, agriculture produce did not even make India’s top ten exportsas industrial goods were responsible for India’s top ten exports. Mineral Fuels made up India’s top export in 2019 at $44.1 billion, followed by Gems and Precious Metals at $36.7 billion, and Computer Machinery at $21.2 billion. 

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India’s I.T sector is also a major producer of Indian productivity with domestic revenue expected to hit $44 billion in 2020, while exports revenue was estimated at US$ 147 billion. 

ThailandThe world’s second-largest exporter of rice had total exports of $245 billion in 2019, with a labour force of 39 million which is even less reliant on agriculture than India. 

Agriculture contributes 8.4% to Thailand’s GDP, with Industry at 39.2% and Services being the highest contributor at 52.4%. 

Food is not a major top 5 export from Thailand, as Computer Machinery was its major export in 2019 at $40.2 billion, followed by Electrical equipment at $33.9 billion and Vehicles at $28.9 billion. 

(READ MORE: EFG Hermes highlights sectors that will boom Post-COVID)

VietnamSoutheast Asia’s star economy was the 3rd largest emerging economic rice exporter in 2019, with a labour force of 57 million. Vietnam recorded a trade surplus of $11.12 billion in 2019, from exports of $264.189 billion. 

Agriculture contributes 15.3% to Vietnam’s GDP, followed by industry at 33.3% and Services at 51%. 

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Vietnam exported $126 billion in electrical equipment in 2019 alone, with smartphones and spare parts making up $51.38 billion of that amount. Footwear exports came at $24 billion in 2019 while clothing was $16 billion. 

From the data above, agriculture which employs a component of emerging market economies does not contribute the most to their productivity, as manufactured goods are a major source of export income and rising. 

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Does sending more people to the farms increase productivity? 

Affiong Williams, the founder of food processing company ReelFruits, says that she does not think sending more Nigerians to the farms will increase productivity because “There is very little material productivity to achieve by increasing physical labour on the farms. Productivity increases in Agriculture, which moves the needle on production output, are more impacted by things like fertilizers, mechanization, and increased technical expertise. Manual labour is no match for any of those things.

What does Nigeria need to do to improve yields? 

The over-reliance on smallholder farming, in my opinion, is the biggest hindrance by the government to improve agro yields,” she added.

She added that even though the current model may be seen as a “development activity,” it barely achieves its true aim. 

To improve the output of any crop, one needs to do a lot of testing and control for so many factors to be able to arrive at the right conditions which increase productivity. Smallholder farmers do not have the resources to do this type of ‘A/B testing’ as it were and so it is very difficult to get true information and disseminate the right techniques that all of these farmers can apply.

“I think the government needs to enable more commercial farming by the private sector who are able to acquire the resources to increase productivity and disseminate such learnings at a faster pace, she said.

(READ MORE: IMF expects Nigeria’s GDP to shrink by 5.4% in 2020)

 Bottom Line: The Nigerian government is not focusing on the aspects that increase productivity in agriculture which experts say are fertilizers, mechanization, and increased technical expertise, components that cannot be replaced with more human capital in the farms. 

Secondly, growth in Nigerian agriculture yields can only be done through large scale commercial farming with the ability to conduct tests to find the right techniques for farmers.  

Finally, compared to contemporary emerging economies, Nigeria is seriously lagging behind in both agriculture exports and manufactured exports,  as Nigeria’s top ten agriculture exports hit just N289 billion between April 2019 – March 2020. 

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Hospitality & Travel

FG lists approved COVID-19 test centres for international travellers, to sanction airlines over non-compliance

The NCAA also warned airlines to desist from flouting COVID-19 protocols.

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FAAN

The Federal Government has listed the approved COVID-19 test centres for international travellers. This was disclosed by the Federal Airports Authority of Nigeria (FAAN) via its Twitter handle on Monday.

According to the agency, some of the 68 centres are: EHA Clinics, The 54gene COVID-19 mobile laboratory, Medicaid Radio-diagnostics Centre, FCT Abuja; SynLab Ikeja, VI, Lekki; 54Gene Lekki, Medbury Medical Services, Imeja & Lekki; Clina Lancet, Maryland, and Biologix Medical Services, Anthony, Lagos, among others.

Also, the FG through the Nigerian Civil Aviation Authority (NCAA) has threatened to revoke the licenses of domestic airline operators over non-compliance with the COVID-19 protocols.

Director-General, NCAA, Mr Musa Nuhu, issued the warning in a letter to all operators (DG39/20), with reference NCAA/DG/AIR/11/16/267 on Monday.

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Nuhu said the warning was made necessary because some domestic airlines had been flouting the protocols.

According to him, the continuous non-compliance with the COVID-19 protocols would attract severe penalties up to and including cancellation of approval to resume domestic operations.

He said: “It has been brought to the notice of the Nigerian Civil Aviation Authority that some domestic airline operators have not been complying with the COVID-19 protocols.

“These protocols were released through All Operators Letter (AOL) DG035/20 ref. NCAA/DG/AIR/ 11/16/260, dated Sept. 4 and an Advisory Circular (AC) NCAA-AC-AMS-006, also dated Sept. 4.

“Approval for resumption of domestic operations are predicated on compliance with the above protocols.”

Nuhu added that this was a warning to all domestic operators who were not in compliance to desist from such acts immediately.

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