By Abdulateef Olatunji ABDULRAZAQ, Founder, Taxmobile.Online and Principal Partner, AOA Professional Services
VAT in Nigeria: Introduction
Value Added Tax (VAT) is a consumption tax paid on all goods and services provided in or imported into Nigeria. The tax shall be computed at the rate of 7.5% with effect from 1st February 2020, on the value of all goods and services, except that goods and services listed under Part III of the first schedule of VAT Act(As Amended) shall be taxed at zero rates.
VAT is administered and managed by the Federal Inland Revenue Service(FIRS) and they may do such things as it may deem necessary and expedient for the assessment and collection of the tax and account for all amounts so collected following the provisions of the VAT Act.
VAT in Nigeria: 10 Key Trends on Value Added Tax
1. Taxable Goods and Services:
All goods and services supplied in Nigeria are liable to VAT in Nigeria except goods and services specifically listed in the First Schedule to the Act.
2. Place of Supply of Goods and Services:
Goods are supplied in Nigeria if they are physically present, assembled, imported, installed in Nigeria and where the beneficial owner of the rights on the goods is a taxable person in Nigeria and the right is situated, registered or exercisable in Nigeria.
For services, the service is rendered to or consumed by a person in Nigeria, irrespective of whether the service is rendered within or outside Nigeria.
Incorporeal is supplied in Nigeria, irrespective of where the payment for its exploitation is made, if:
a) the exploitation of the right is made by a person in Nigeria whether or not the right is registered in Nigeria;
b) assigned to or acquired by a person in Nigeria; and
c) the incorporeal is connected with a tangible or immovable asset located in Nigeria.
Services rendered to and consumed by a Nigerian resident while physically outside Nigeria, are not liable to VAT in Nigeria.
Services provided under a contract of employment are not liable to VAT.
Land and building, money, and securities are not liable to VAT.
3. Rate of VAT:
Section 4 of the VAT Act is amended by changing the VAT rate from 5% to 7.5%.The VAT rate was changed to 7.5% with effect from the 1st of February, 2020.
4. Registration and Deregistration Requirements:
Section 8 of the VAT Act was amended to mandate all taxable persons to immediately register for the tax upon the commencement of business as defined in Section 46 of the VAT Act.
The penalty for failure to register is as follows:
The first month of default is ₦50,000
Subsequent months in which failure continues is ₦25,000;
A taxable person who permanently ceases to carry on trade or business in Nigeria shall notify the Service within 90 days of cessation.
Penalties for failure to file returns will continue to apply where the taxpayer fails to notify the Service of cessation of business.
5. Non-Resident Companies:
Section 10 of the VAT Act provides that:
a non-resident person who makes taxable supplies to a person in Nigeria is required to register for the tax with the FIRS and obtain a Taxpayer Identification Number (TIN).
the non-resident person shall include VAT on its invoice for the supply of goods or services made.
a non-resident person may appoint a representative in Nigeria for the purpose of its tax obligations in Nigeria.
where a person has been appointed by the Service, the agent shall withhold and remit the VAT due on the transaction.
Where the non-resident did not collect the tax, the resident person to whom the supply was made is required to withhold and remit the VAT due to the Service in the currency of the transaction.
A non-resident company which has a fixed base or a permanent establishment in Nigeria is required to comply with the provisions of the VAT Act.
6. Collection and Remittance:
By Section 4 of the VAT Act, every taxable person is to collect tax at the rate of 7.5% of the value of the goods and services supplied and the tax so collected is the output VAT.
Monthly remission of the net VAT payable (which is the excess of the output VAT over the input VAT) is to be made in the currency of transaction on or before the 21st day of the preceding month of such transaction and returns must be rendered to FIRS.
7. Withholding of VAT and Self-Account:
Section 14(3) & (4) of the VAT Act introduced a Self-Account provision for all supplies for which VAT was not charged.
The Self-Account provision imposed a duty to withhold and remit VAT on a taxable person to whom a supply is made in Nigeria where:
a) the supplier is a person exempt from charging VAT under the Act;
b) the supplier failed to charge VAT;
c) the supplier is a foreign company that makes a taxable supply of goods or services without a fixed base or permanent establishment in Nigeria, whether or not VAT is included in the invoice.
The taxable person shall self-account and remit the tax due in the currency of the transaction on or before the 21st day of the month immediately following the month of the transaction.
The taxable person, in accounting and remitting the VAT, shall provide a schedule of all taxable transactions for which it is self-accounting, in the form prescribed by the Service, indicating the tax identification numbers of the suppliers in the schedule.
Where a taxable person receives taxable supplies for which VAT was not charged from either a person below the threshold of ₦25m or any other person, the taxable person receiving the supplies shall self-charge and account for the VAT due.
Return for VAT self-accounted or self-charged shall be separated and made in the form prescribed by the Service.
8. Introduction of VAT Threshold:
The amendment to Section 15 of the VAT Act created a threshold for taxable persons under the Act. By this provision, only taxable persons with taxable supplies of ₦25million and above are required to charge, collect, remit the tax and file monthly returns to the FIRS.
a) A taxable person who has made taxable supplies of ₦25 million before the introduction of the VAT threshold shall continue to charge, collect, remit the tax and file monthly returns even if he or she has not made ₦25million taxable supplies in the current year.
b) A taxable person who did not attain the ₦25 million taxable supplies before the 1st of February 2020, shall immediately commence charging, collecting, remitting the tax and file monthly returns upon attaining the threshold of ₦25million taxable supplies at any time within the year;
c) A taxable person may voluntarily register, charge, collect, remit the tax and file monthly returns to the FIRS at any time even without attaining the ₦25 million threshold. Such a person shall notify the FIRS before doing so and shall be subject to all the provisions of the VAT Act applies to persons above the threshold.
d) A taxable person who has not attained the ₦25million threshold but expects to attain the threshold at a future date within the calendar year shall immediately commence charging, collecting, remitting the tax and filing monthly returns to the FIRS.
e) A taxable person who makes taxable supplies amounting to ₦25million and above within a calendar year is required to file monthly VAT returns to the FIRS, even if part or the whole of such supplies are exempt under the VAT Act or not. (Please note the definition of taxable supplies).
9. Business Sold or Transferred:
VAT is exempt on any asset employed in trade or business sold or transferred, where a trade or business carried on by a company is sold or transferred to a Nigerian company for better organization of that trade or business or the transfer of its management to Nigeria.
The entities will qualify for this concession subject to the following conditions:
The company must prove, to the satisfaction of the Service, that one company has control over the other or that the companies are controlled by some other person or are members of a recognized group of companies;
The entities involved must have been related for not less than a consecutive period of 365 days before the reorganization;
However, where assets transferred in the reorganization are further disposed of within 365 days after the reorganization, the VAT exemption granted shall be withdrawn and the applicable VAT shall be recovered.
As such, VAT that is chargeable upon the transfer shall be treated as due but unpaid from the date it ought to have been paid if there was no concession; and the penalty and interest shall be charged accordingly.
10. Offences & Penalties:
a) Failure to Register: A taxable person who fails to register is liable to a fine of N50,000 in the month of default and ₦25,000 for every month in which default continues.
b) Failure to Submit Returns: A taxable person who fails to submit returns to FIRS is liable to a fine of ₦50,000 in the month of default and ₦25,000 for every month in which default continues.
c) Failure to notify change of Address or permanent cessation of business: A taxable person who fails to notify FIRS of any change of address or who fails to comply with the requirement for notification of permanent cessation of business is liable to pay ₦50,000 for the first month in which failure occurs and ₦25,000 for each subsequent month in which failure continues.
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More About Author:
Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this,Olatunji worked as Director,Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax,Regulatory & Advisory Services at Saffron Professional Services.
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