Value Added Tax (VAT) is a consumption tax imposed on the value of the supply of taxable goods and services produced and consumed in Nigeria. The Finance Act (FA)2020 generally defines taxable supplies of goods and services as supplies received and consumed by a person in Nigeria, regardless of the location of the supplier. Such non-resident persons are required to include Nigerian VAT on their invoices to Nigerian customers.
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).
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.
Tax Invoice requirements for VAT operations
A tax invoice is an invoice issued for the taxable supply of goods & services. Tax invoice broadly contains details like description, quantity, the value of goods/service, the tax charged thereon and other particulars as may be prescribed. A tax invoice is a primary evidence for the recipient to claim an input tax credit for goods & services.
Federal Inland Revenue Information Circular No 2005/01, February 2006 on Tax Invoice and its relevance to VAT operations listed the requirements of a tax invoice as follows:
- Name, address and VAT registration number of the firm that delivers the taxable goods or services
- Name and address of the person/company receiving the taxable goods or services
- Description, type, number, unit price and total sales value or consideration of goods sold or purchased
- Value Added Tax (VAT) charged or collected and rate applied
- Date of delivery
The VAT Act clarifies the time of supply of goods and services for connected and unrelated parties. For unrelated parties, supply is deemed to take place upon the issue of receipt or invoice by the supplier, or payment of consideration is due to or received by the supplier in respect of that supply, whichever occurs first. For connected parties, certain intercompany transactions may be subject to VAT where a supply is deemed to have occurred as defined in the Act whether an invoice is issued or not.
The Act also states that When goods are supplied under any rental agreement or services are furnished under any agreement which provides for periodic payment, the time of supply will be earlier than when payment is due or is received or an invoice relating to payment is issued.
Section 29 and 31 of the VAT Act provides stiff penalty for failure to issue tax invoice. A person who fails to issue a 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 goods or services for which the invoice was not issued.
VAT Accounting and Record-Keeping
The VAT Act (As Amended), Section 15 (1) “A taxable person who, in the course of a business, has made taxable supplies or expects to make taxable supplies, the value of which, either singularly or cumulatively in any calendar year, is N25 million or more shall render to the FIRS, on or before the 21st day of every month in which this threshold is achieved and on or before the same day in successive months thereafter, a return of the input tax paid and output tax collected by him in the preceding month in such a manner as the FIRS may prescribe.”
The above exempts any person who does not fall within the threshold in section 15(1) VAT Act from the implications of such provisions as sections 8(2), 13, 29, 34 and 35 of the VAT Act.
Determination of N25 Million Turnover Threshold
The FIRS Circular (Clarification on the implementation on VAT Act) No 2021/08 published on June 3 2021 states as follows:
- A taxable person who has made taxable supplies of N25 million before the introduction of the VAT threshold shall continue to charge, collect, remit the tax and file monthly returns even if she has not made 25 million taxable supplies in the current year.
- A taxable person who did not attain the N25 million taxable supplies before the 1st of February 2020 (being the date of commencement of the new VAT rate of 7.5%), shall immediately commence charging, collecting, remitting the tax and filing monthly returns upon attaining the threshold of N25million taxable supplies at any time within the year;
- 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 N25 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.
- A taxable person who has not attained the N25million 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.
- A taxable person who makes taxable supplies amounting to N25 million 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 from VAT. (Please note the definition of taxable supplies).
Monthly VAT returns are to be rendered in the appropriate form as listed below:
- Form VAT 002: For (regular) filing of output VAT less input VAT returns by a Nigerian company.
- Form VAT 002A: For filing returns for VAT withheld and self-charged by businesses in the oil and gas sector, and government agencies and parastatals.
- Form VAT 002B: For filing VAT self-charged or deducted-at-source on payments to non-residents or other businesses who do not include VAT on their invoices
- Form VAT 002NRC: For non-resident businesses which the FIRS intends to direct to collect and remit VAT
NOTE: FIRS requires that VAT returns are filed every month. They are due by the 21st of the month following the reporting period. Any VAT due should also be paid by this date.
It takes more than just paying your taxes to be a good taxpayer, you must ensure you pay on or before your tax liability is due; if every taxpayer decides to pay their taxes only when they feel like it or when it is convenient for them, then they probably may not pay at all since there may never be such a time that is ‘convenient’ to pay.
The Federal Inland Revenue Service (FIRS) is saddled with the responsibility of ensuring that taxpayers remit and file their taxes as and when due, and also enforcing penalties where there is lateness.
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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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