A Life in Tax : VAT and the Hospitality Industry. It was a Tuesday morning, and I sat across from a young hotel accountant named Chika. She looked worried, clutching a pile of invoices from the weekend’s bookings.
“Sir,” she began nervously, “I don’t understand this VAT thing. My hotel charges VAT on rooms, catering, and hall rentals. But someone just asked me why we don’t zero-rate the food. They said bread, rice, and water are zero-rated VAT. Please, what’s the truth?”
I smiled because this was a familiar question.
“Chika,” I said, “you are right that under the Nigeria Tax Act 2025, certain items are zero-rated. This means VAT is charged at 0%, but you can still claim back your input VAT. For hospitality, these include:
- Basic food items like rice, yam, beans, bread, water, fish, and meat (so long as they are raw and unprocessed).
- Medical and pharmaceutical products (in case your hotel pharmacy stocks them).
- Educational books and materials (sometimes supplied during conferences).
- Electricity generation and transmission (for those running independent power supply services).
- Exports of services (for example, conference packages billed abroad and consumed outside Nigeria).
“But here’s the twist,” I leaned forward.
“Prepared meals like the jollof rice or pepper soup from your hotel kitchen are not zero-rated. They attract the standard 7.5% VAT, because they are considered a hospitality service, not a raw food item.”
Her eyes widened. “So, that’s why the kitchen meals have VAT but bottled water from the minibar doesn’t?”
“Exactly,” I replied. “Your rooms, catering services, entertainment, and event hall rentals are all standard-rated at 7.5%. But when your hotel buys bread, rice, or bottled water to resell directly, those are zero-rated.”
I could see her shoulders relax. “This makes sense now. Zero-rated means we can still claim input VAT. Exempt means we can’t. And most of our core services remain at 7.5%.”
“Correct,” I said, “and that’s the story of VAT in hospitality. The law draws a fine line between what is basic and essential versus what is value-added service. And as accountants, it’s our job to know where that line is.”
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She laughed and said, “Sir, you’ve just saved me from embarrassing myself in front of my GM at tomorrow’s finance meeting.”
I smiled. Another day, another life in tax.
Olatunji Abdulrazaq CNA, ACTI, ACIArb(UK)
Founder/CEO, Taxmobile.Online
