June 7, 2015

Value added tax (VAT) in Nigeria (II)



All goods and services are ‘VATable’, except those that are exempted under schedule 1 of the Act.

These are:

Goods Exempted

All medical and pharmaceutical products, Basic food items, Books and educational materials, Baby products, Fertilizer, locally produced agricultural and veterinary medicine, farming machinery, and farming transportation equipment

All exports Plant and machinery imported for use in the Export Processing Zone

Plant, machinery and equipment purchased for utilisation of gas in downstream

petroleum operations. Tractors, ploughs, and agricultural equipment and implements purchased for agricultural purposes

Services Exempted

Medical services, Services rendered by community banks, People’s Bank and mortgage institutions, Plays and performances conducted by educational institutions as part of learning. All export services. Note also: Exports are zero rated.

VAT is leviable at the time of supply of goods and services. VAT paid on inputs are creditable against output tax.Tax returns are to be submitted on monthly basis.

   Administration of VAT

The tax shall be administered and managed by the Federal Board of Inland Revenue (in this Act, referred to as “the Board”)


A taxable person shall within six (6) months of commencement of this Act or within six (6) months of commencement of business, whichever is earlier register with the Board for the purpose of this Act

Registration by government ministries, etc as agents of the Board

Every government ministry statutory body and other agency of government shall register as agent of the Board for purpose of collection of tax under this Act.

Every contractor transacting business with a government ministry, statutory body and other agency of federal state or local government shall produce evidence of registration with the Board as a condition for obtaining a contract.

Registration by non-resident companies

A non-resident company that carries on business in Nigeria shall register for the tax with the Board using the address of the person with whom it has a subsisting contract as its address for purposes of correspondence relating to the tax.

Records and Accounts

A registered person under shall keep such records and books of all transactions, operations imports and other activities relating to taxable goods and services as are sufficient to determine the correct amount of tax due under the Act.

Offences by law

Furnishing false documents, Evasion of tax, Failure to make attribution

Failure to notify change of address, Failure to issue tax invoice, Resisting authorised officers, Issuing tax invoice by unauthorized person, Failure to register, Failure to keep proper books and accounts

Failure to collect tax, Failure to submit returns, Aiding and abetting commission of offence

Offences by body corporate.

Explanation of Some Terms in VAT

Taxable Goods and Services

The Act says the tax shall be charged and payable on the supply of all goods and services (in this Act referred to as “taxable goods and services”) other than those goods and services listed in the First schedule to this Act.

Allowable Input Tax

The input tax to be allowed as deductions from the output tax shall be limited to the tax on goods purchased or imported directly for resale and good which form the stock-in trade used for direct production of any new product on which the output tax is charged.

This means input tax on:

Any overhead, service and general administration cannot be charged as input tax but expended through the profit and loss account   On capital item and asset too should be capitalized along with the cost of the item and asset.

Distribution of Revenue: 15% Federal Government. 50% States Government & FCT, Abuja. 35% Local Governments.

Input Tax: Tax charged on purchases made

Output Tax: Tax charged on sales made

Taxable Person

Means a person who independently carries out in any place any economic activity as a producer, wholesale trader, supplier of goods, supplier of services or person exploiting tangible or intangible property for the purpose of obtaining income therefrom by way of trade or business and includes a person and an agency of government acting in that capacity.

Zero rated goods

If you sell zero-rated goods or services, they count as taxable supplies, but you don’t add any VAT to your selling price because the VAT rate is 0 per cent. Thus while no VAT is charged on providing goods and services taxable at zero-rate of VAT, you are still able to deduct VAT on costs and expenses you incur in making zero-rated supplies.

Examples are (1) all non-oil exports (2) goods and services purchased by diplomats (3)

goods and services purchased for use in humanitarian donor funded projects

Exempted Goods/Services

If you sell goods or services that are exempt, you don’t charge any VAT and they are not taxable supplies. This means that you won’t normally be able to reclaim any of the VAT on your expenses. Generally, you don’t register for VAT or reclaim the VAT on your purchases if you sell only exempt goods or services. In this case you may not be able to reclaim the VAT on all your purchases