Value Added Tax VAT is a tax on spending and it is borne by the final consumer of vat-able goods and services, because it is included in the price paid.
Value added tax known as VAT for short is one of the types of taxes in Nigeria, under the indirect tax category.
It replaces sales tax, which was characterized by a lot of lapses, inadequacies and restrictive coverage.
VAT is a consumption tax imposed on all manufactured goods and industrial raw materials and other inputs imported into or produced in Nigeria.
The VAT rate is 5%, payable every 21st of each month.
Value added tax was established by Decree No. 102 of 1993. The dragnet of VAT covers everybody because everybody is a consumer of either goods or services.
You can also read about Withholding tax in Nigeria in this post.
More on Value Added Tax In Nigeria
Statement of Standard Accounting Practice (SSAP) No. 5 states in an explanatory note that: VAT is a tax on the supply of goods/services, which is eventually borne by the final consumer but collected at each state of the production and distribution chains.
Value added tax in Nigeria came on stream effectively on January 1, 1994. It is being administered by the Federal Inland Revenue Service (FIRS).
The FIRS works in close co-operation with the Nigeria Customs Services (NCS) and State Internal Revenue Services (SIRS), for effective collection of VAT money.
25%, 45%, and 30% sharing formula for Federal Government, State Governments, and Local Government respectively became effective on January 1, 1998.
Every VATable person is required to keep proper records and books of all transactions, operations, imports, and activities sufficient enough to calculate the correct amount of Value added tax payable.
You should learn more about Nigeria tax system in this post. In there, you’ll learn more about the history of taxation in Nigeria, types of taxes, tax rates, tax terms and more.
They are expected to maintain effective accounting system, which will facilitate the calculation of the amount of Value added tax due to, or from him and examination, by external inspectors.
The Decree establishing Value added tax in Nigeria makes it mandatory for all VATable persons to get registered with the Directorate of VAT nearest to him.
This is majorly for the purpose of charging and accounting for the tax relevant forms filled, to facilitate registration.
Upon registration, identification number together with the certificate of registration shall be issued and it shall be displayed within the office complex.
The registration is to cover all the business activities of the VATable person. To register, you’ll need to obtain a TIN, then obtain VAT input form from the FIRS, then submit to FIRS office every 21st of each month.
So, who should pay VAT? Which forms or business organization should pay VAT? See the video below for more information.
Persons involved in activities such as Agriculture, Investment and Property, Pharmaceuticals, Printing, etc. and mortgage Institutions need not register for VAT.
Learn more about the establishment and introduction of Value-added taxes and other tax types in this post on tax laws in Nigeria tax system.
How to Appy for VAT
To apply for VAT, you will need to go to the Federal Inland Revenue Service (FIRS) office that is closest to your registered address. You can find the locations on the FIRS website with the following documents:
- Memorandum & Articles of Association
- Certificate of Incorporation: CAC2, CAC7
- Duly filled and officially stamped VAT form 001
- Utility bill
- Application letter on company letter headed paper
If your business is a registered business name, and not a limited liability company then the only documents which you will need to provide are:
- Business Name Registration Certificate
- Duly filled and officially stamped VAT form 001
- Utility bill
- Application letter on business letter headed paper
You should take the original copy and 2 photocopies of each document.
The originals are required for sighting only, 1 copy will be left with the FIRS, and 1 copy will be stamped and signed by an FIRS official as evidence that you have made an application.
Also check: The taxation of special businesses in Nigeria
These are all domestic manufacturers, wholesalers, distributors, importers, and suppliers of goods and services in Nigeria.
They include sole proprietors, professionals, partnership, limited liability company, club, Association or a Charity.
A resident of Nigeria who performs services outside Nigeria, shall register with the local VAT office.
Besides, a non-resident who has a business, trade, profession, or vocation in Nigeria must register with the local VAT office.
Taxable activities includes any activity, other than those in the exempt list, conducted as a business, vocation, or trade.
It includes the activities of public, or governmental authorities, associations and clubs.
VATable persons included persons engaged in activities such as:
- Clearing and forwarding
- Professional services
- Food and Beverages
- Hotel and Catering
- Chemical Paint and allied products,
- Manufacturing and Transport and Haulage.
People involved in these businesses or activities are VATable.
Every VATable person is required to keep proper records and books for all transactions, operations, imports and activities sufficient enough to calculate correct amount of VAT payable.
They are expected to maintain efficient and effective accounting system, which will facilitate the calculation of the amount of VAT due to or from him and examination, by external inspectors.
VATable Goods and Services in Nigeria
VATable goods and services are those not specifically exempted from VAT by the Decree.
However, there are heated debates by some professionals based on implications of Value added tax on their operational peculiarities.
Knowledge of the peculiarities in a particular industry is very important in computing input tax and output tax.
In case of input tax, one should ascertain the relevance of such cost(s) to the company, the final consumer of such goods/services and whether such goods or services are input into the production process.
To determine output tax, one should ascertain the VATability of the goods or services, whether the amount collected is properly recorded, and whether returns are rendered promptly.
Whatever may be the case, it is important to apply little flexibility as regards the interpretation or description of certain goods or services.
When applying best of judgment reasonableness and necessity should be the guiding philosphy as per criteria to use.
Also check the meaning of stamp duty in Nigeria
- All goods manufactured and assembled in Nigeria
- All goods imported into the country
- Sale of second-hand properties
- Household furniture and equipment
- Petrol and all petroleum products
- Jewels and jewelry’s
- Beer Wine, liquor, Spirits, Soft drinks
- All vehicles and their spare parts
- All air craft, Aircraft bodies and their spare parts
- Perfumes and cosmetics (including toiletries)
- Soap and Detergents
- Mining and Minerals
- Office furniture and equipment if any (including toiletries)
- Electric materials of any description
- All air ticket for domestic travel within Nigeria
- Any other goods that may be determined by the FBIR from time to time.
The following services for which bank charges their customers:
- The opening of letter of credit; transfer; purchase and issuance of bank drafts, remittances and hailing charges for special transactions.
- Accountancy services, including any type of audition, bookkeeping, or similar services.
- The provision of a report, advises, information or similar technical services in the following area:
a. Taxation and related consultancy services;
b. recruiting, staffing and training;
c. Market research;
d. Public relations and;
- Legal services, including and service supplied in connection therewith.
- Computer services, including the provision of bureau facilities, system analysis, and design software, development, and training.
- Services supplied by architects (including landscape architects) and draughtsman.
- Services supplied by land building surveyors, quantity surveyors, insurance companies and assessors, fire and marine surveyors, loss adjusters or similar services.
- Services provided by consulting engineers;
- Services supplied by auctioneers, estate and valuers
- Services supplied by brokers
- Mail and parcel courier service
- Repairs, alteration, processing or any other services provided in connection with designated goods dealer;
- Telecommunication services, including rental of telecommunication equipment and installation services.
- Letting video, tapes or any other audiovisual records or hiring copying and rewriting of videotapes and similar services.
- Accommodation and all other services provided by hotel owner or operator including Bars. Beverages, telecommunications, conference and business services.
- Restaurant service supplied by restaurant operator
- All goods and services for repairs and maintenance (including accessories of vehicle, plant, machinery and equipment, aircraft and related services.
- Air travels and company car hires.
- Any other services as may be prescribed by the Board from time to time, as taxable services
Goods Exempted From VAT
The following goods are exempted from Value added tax. They include;
- All medical and pharmaceutical products
- Basic food item
- Books and educational materials
- Baby products
- Fertilizer, agricultural and veterinary medicine, farming, and machinery.
- All diplomatic items are exempted under reciprocal international agreements.
- All exports.
Also See: How to calculate Vat with vat calculator
Services Exempted from VAT
The following services are exempted from Value Added Tax:
- Medical services
- Services rendered by community banks, peoples bank and mortgage institutions.
- Plays and performances conducted by educational institutions as part of learning
- All export services
Value-Added Tax Returns and Remittances
In accordance with section 12 of the VAT Decree, a supplier or manufacturer of VATable goods/services shall render returns on or before the 14th day the month, following that in which the purchase was effected.
The period of submission of returns and effecting payment has been administratively extended to the last day of the month following that in which the purchase or supply was made.
The return shall cover all taxable goods and services purchased or supplied by the VATable person during the preceding month.
Any person who imports VATable goods into Nigeria shall render returns to the Board on all taxable goods imported by him.
Every VATable person must keep proper record of all supplies made and received. This will facilitate the computation of Value added tax due to or from him.
Returns shall be made using VAT FORM No. 002.
Subsection 1 f section 12 of the VAT Decree provided that when output tax exceeds the input tax, the excess should be remitted to the board while he is entitled to a refund.
It should be noted that companies whose goods and services are exempted from VAT should not register for Value added tax and cannot make returns.
Companies which deals on zero-rated products (i.e export products at the last leg of their exportation from Nigeria) are in the VAT system.
Payments shall be made using bank certified cheques or draft made payable to the Federal Government of Nigeria – FIRS – VAT ACCOUNT.
Where however the VATable person fails to render returns or renders an incomplete, or inaccurate returns, the Board shall assess based on best of it’s judgement.
Ref. S. 14 of VAT Decree that any taxable person who fails to remit the tax within the limited time specified shall pay a sum equal to 5% of the amount of tax remitable plus interest at the commercial rate in addition to the delayed tax.
Any tax penalty, or inetest which is yet to be paid after the specified period for payment may be recovered by the board through proceeding in the Federal high court.
Value Added Tax in Nigeria Summary
There you have the information you need on Value added tax in Nigeria. It is simply the tax imposed on produced goods and other inputs imported into the country.
The rate is 5% and some goods, and services are VATable. Non-VATable services include dividends, interest on loans/overdrafts to and from customers, interest on Inter-bank placements, profit on disposal of government securities.
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