VALUE ADDED TAX

Posted: 9 months ago by Lynda Nmaram | Reading Time 4 min

 

       
 

VALUE ADDED TAX

Value Added Tax (VAT), is a consumption tax on goods and services, it is charged at 5% on all VATable goods and services. The tax is borne by the final consumer

The VAT Act requires manufacturers, wholesalers, importers and suppliers of VATable goods and services to be registered for VAT within six months of the commencement of the VAT Act or within six months of the commencement of business, whichever is earlier

 

A registered person is expected to charge and collect VAT on goods and services supplied/sold. The amount so collected constitutes the VAT output.

On the other hand, purchaser/user of Vatable goods and services is also expected to pay VAT on the goods and services supplied to him. This constitutes the VAT input

 

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.  

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.

Kindly note that Recoverable input VAT is limited to goods purchased or imported directly for resale and goods which form the stock in- trade used for the direct production of any new product on which the output VAT is charged. · VAT on overhead, service and general administration expenses are not allowed as deduction from output VAT. · VAT on fixed assets (capital items) which is to be capitalized along with the cost of the capital item is not allowed as deduction from output VAT.

 

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.

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;

Services Exempted

(a) Medical Services;

(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.

TIT BITS

  • 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. In the event that there was no VATable transaction in the month, the registered person is still expected to file “Nil Returns”