Value Added Tax (VAT) was introduced into Nigeria’s tax system in 1993, with a moderate VAT rate of 5%. By virtue of corrections made by the Finance Act 2019, the current VAT rate for Nigeria is now at 7.5%. In addition to the amended VAT rate, there are other significant amendments to the VAT Act which include the exemption of small businesses from VAT registration and filing, as well as the expansion of the VAT exemption list. Registration for VAT (and commencement of filing of returns) is now mandatory to be upon the start of business, unlike in the past when it was not clear when a taxable person could be supposed to have commenced business, the Finance Act now makes it visible that a business shall be estimated to have commenced in Nigeria on the day that the entity carries out its first transaction
Mr. Babajide Sanwo-Olu the Governor of Lagos State, on 10th September 2021, signed into law, “the bill for a law to impose and charge Value Added Tax (VAT) on certain goods and services” (the Lagos VAT Law). Lagos State is the second State of the Nigerian federation to pass a VAT bill into law, after Rivers State. The Governor of Rivers State acceded to the Value Added Tax Law No.4 2021 on 19 August 2021. The Rivers and Lagos States VAT legislations came after a ruling by Justice Stephen Pam of the Federal High Court sitting in Rivers State, restricting the Federal Inland Revenue Service (FIRS) from obtaining VAT and Personal Income Tax (PIT) in the State.
Although the Federal High Court declined to grant a stay of execution of its judgment, the Court of Appeal sitting in Abuja has, pursuant to an application made by the FIRS, conferred an injunction pending appeal, directing parties to maintain the status quo ante. The Court of Appeal then postponed the matter for debates on the application for joinder by Lagos State Government and the application for a stay of execution by the FIRS. With these statutes, both Rivers and Lagos States are to refrain from imposing their VAT laws until the determination of the application for the stay of execution before the Court of Appeal.
Value Added Tax (VAT) is a form of tax or levy enforced by the Federal Government on the procurement and consumption of goods and services in Nigeria. It is a levy placed on the value which a citizen receives from the procurement of goods and services as against a tax that is levied on the income of a citizen. It can also be referred to as a tax on spending or consumption charged at every phase of transaction but eventually borne by the final consumer of such goods and services.
The lawful regime directing the control, enforcement and regulation of VAT on goods and services in Nigeria is the Value Added Tax Act (VAT Act) and the Finance Act (the Act). By section 7 of the VAT Act, the Federal Inland Revenue Service (FIRS) is the agency responsible for the administration, management and collection of VAT in Nigeria. The present rate of VAT in Nigeria is 7.5 percent of the total value of the goods or services procured.
Businesses entitled to VAT registration
Individuals or organizations that operate a business in Nigeria either as a manufacturer, wholesale trader and or supplier of goods and services subjected to tax shall upon establishment of business register with the FIRS for the purpose of VAT correspondence. An individual or business who registers with the FIRS for the intention of VAT agreement is referred to as a taxable person. In the state of a non-resident company operating a business in Nigeria, it is to register for VAT with FIRS using the address of the person with whom it has a subsisting contract as its address for the aim of correspondence relating to VAT. Refusal or failure by a taxable business or person to register with FIRS upon its operation of business in Nigeria will be fined a penalty of N50,000 for the first month within which the default commenced and N25,000 for each following month for which the default continues.
A non-resident company is required under the VAT Act to add VAT on its bill for the provision of taxable services and the person to whom the services are offered is to pay the tax directly to the FIRS in the currency in which the transaction was done. In a situation where the taxable goods or services are offered to a person and no tax is charged on the receipt issued, he will be demanded to account for the tax payable and remit the same to the FIRS.
Date for VAT submission
VAT is to be remitted to the FIRS on or before the 21st day of every month. The levy made shall be for provision of goods and services for the last month. A taxable person who ceases to remit VAT shall be obliged to pay a fine of N50,000 for the month of default and a fine of N25,000 for every month in which the default continues.
Taxable Goods and services
The rule is that VAT shall be levied and payable on the supply of all goods and services in Nigeria excluding those specifically exempted by the Act. For goods and services to be subject to VAT they must be physically present in Nigeria, imported,
assembled or installed in Nigeria.
Goods and services excluded from VAT
The law excludes certain goods and services from being subjected to VAT charges under the Act. These goods and services include medical services, plays and performances by educational institutions and peoples bank, tuition fees. Goods exempted are basic for items like cooking oil, bread, herbs, fish and lots more
Meanwhile, state governments are indicating the need for the state to be in charge of the VAT collection in each state. This has caused a great controversy amongst business owners as the fear of double taxation dawns on them.