OVERVIEW OF THE NIGERIAN VALUE ADDED TAX
The administration and management of VAT assessment and collection in Nigeria has only been under the control of the Federal Inland Revenue Service (FIRS), an agency of the Federal Government.
OVERVIEW OF THE NIGERIAN VALUE ADDED TAX
The administration and management of VAT assessment and collection in Nigeria has only been under the control of the Federal Inland Revenue Service (FIRS), an agency of the Federal Government. In the case of AG Rivers State v. FIRS & AG Federation1, which was decided by the Federal High Court, Port-Harcourt Division, on August 9, 2021, the FIRS was in fact disqualified from handling the VAT system in Nigeria.
VAT is a consumption tax that must be paid on all imported and locally delivered products and services in Nigeria. Individuals, businesses, and governmental organisations are all responsible for paying VAT, which is assessed at a rate of 7.5% at the moment. VAT is not applied to a number of goods and services, including exports, basic food items, books and educational materials, medical and pharmaceutical products, and medical services. The FIRS is given authority to manage the collection of VAT from taxable persons in Nigeria by the VAT Act, 1993 (as amended).
Businesses must register for VAT within the first six months of opening their business, according to Section 8 Subsection 1 of the VAT Act. Businesses must also provide proof of their VAT registration and prior remittance in order to conduct business with state, federal, or local government entities. The registered person is required to submit routine VAT returns and must pay or receive from the FIRS the difference between the input tax and the output tax. The FIRS tax office typically receives VAT returns once a month.
HOW TO CALCULATE VAT
According to section 4 of the VAT Act, all goods and services sold in Nigeria are subject to a flat rate of 7.5% VAT, excluding those that are zero-rated or on the VAT exempt list. One example of this is exported goods, which are all zero-rated, meaning they are still subject to VAT but at 0%. This means that any input taxes are refundable along with the VAT that is collected from the foreign buyer.
Businesses must figure out how much VAT they collected from clients in a given month and subtract it from the VAT they paid to suppliers of products and services. The business is entitled to a refund if the amount of VAT paid exceeds the amount of VAT collected. The business must remit the difference if the amount received is less than the VAT it collected.. It should be noted that only items bought or imported specifically for resale and products used in the actual manufacture of any new product for which an output tax is levied may be considered to determine the offsetting tax. It is not possible to determine the balancing VAT using the VAT on overhead, services, and general expenses. These costs are not eligible because they are anticipated to be deducted before calculating taxable profits.
LAGOS STATE VAT BILL
As a result of the Federal High Court's ruling on VAT, governments like Lagos State and Rivers State have hurried to create their own VAT statutes that will oversee the administration of VAT in their respective jurisdictions.
For instance, Lagos State recently enacted a bill to impose and levy VAT on specific goods and services as well as to establish rules for the state's VAT administration. The Lagos State House of Assembly has approved the Value Added Tax Bill ("Bill"), which now needs the governor of Lagos to sign it into law. Below are some of the Bill's most important provisions highlighted.
Rate of Tax: 6% of the value of goods and services as opposed to the current rate of 7.5% imposed by the Finance Act, 2019.
Administration of VAT: The Lagos State Internal Revenue Service (LIRS) has been vested with the power to administer VAT in Lagos State. All taxable persons are required to register with the LIRS within 6 months of the commencement of the VAT Law. Failure to comply is considered an offence and is punishable by a fine of N50,000 (Fifty thousand naira) for the first month of default and N100,000 for each subsequent month of default.
Returns to the LIRS: Taxable persons are required to render returns to the LIRS on or before the 21st day of the subsequent month after provision of goods and services. Failure to comply will make such person liable to a fine of N500,000. (Five Hundred Thousand Naira) for every month of default.
Treatment of non-resident companies: Companies that carry on business within Lagos State but are not resident in the state are required to register with the LIRS using the address of the person with whom it has a subsisting contract for the provision of goods and services. The non-resident company is to make provision for VAT in its invoice and the person to whom the services were rendered or the goods were provided is required to remit the tax to the LIRS.
Establishment of the Value Added Tax Tribunal: The Bill also establishes a Value Added Tax Appeal Tribunal which shall assist the LIRS in resolving disputes arising from tax assessments.
Sharing formular for revenue accruing from VAT: The Bill provides that the revenue obtained by the Lagos State Government from VAT will be distributed between the state and local governments in the ratio of 75% to 25%.
GOODS AND SERVICES EXEMPTED FROM VAT
According to the first schedule of the VAT Act, certain goods in Nigeria are expressly exempt from paying VAT. These goods include basic food items, books and educational materials, newspapers, magazines, baby products, commercial vehicles and their replacement parts, agricultural equipment and products, and veterinary medicine.
NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com
WRITTEN BY CHAMAN LAW FIRM TEAM
EMAIL: chamanlawfirm@gmail.com
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