Value Added Tax (VAT) in Nigeria
Understand How Value Added Tax (VAT) Affect Your Small Business.
Value Added Tax is a tax on spending and it is borne by the final consumer of goods and services because it is included in the price paid. As mentioned above, you have to register as a VAT Agent.
The law specifically states that a taxable person shall, within six months of commencement of business register with the Board for the purpose of the tax. All businesses and organisations are to register for Value Added Tax in the local VAT Office nearest to their offices or operating bases. Branches of such businesses and organisations are to register independently in their own areas of operation. A business or organisation which has registered for Value Added Tax is given a VAT registration certificate and will be classified as “registered person’. Your VAT registration number should be displayed on all your invoices.
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Failure to register with the Board within the time specified attracts a penalty of;
- N10,000 for the first month in which the failure occurs; and
- N5,000 for each subsequent month in which the failure continues.
After registration, you qualify to charge and collect Value Added Tax on behalf of the Government. The rate is five percent.
However, there are certain goods and services which are exempted from Value Added Tax. These include the following:
Goods Exempted
(a) Medical and pharmaceutical products;
(b) Basic food items;
(c) Books and educational materials;
(d) Baby products;
(e) Agricultural equipments and products and veterinary medicine;
(f) Fertilizers;
(g) Agricultural chemicals
(h) Exported goods
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Services Exempted
(a) Medical Services;
(b) Services by Community Banks, Peoples Banks and Mortgage Institutions;
(c) Plays and performances conducted by educational institutions as part of learning;
(d) Religious services;
(e) Exported services.
Zero-rated goods and services
Non-Oil exports are introduced into the Value Added Tax Act as Zero-rated goods and services. This means that the sellers are to charge Value Added Tax on sales at 0%. The difference here is that the seller can claim refund for any Value Added Tax paid on inputs purchased.
Remittance of Value Added Tax
Every vatable person is to remit to the relevant Local VAT office the net VAT payable which is the excess of the output tax over the input tax while filing the VAT return. This is another area where some entrepreneurs pay double tax unknowingly. They don’t deduct the VAT input while filing the VAT return. Liability of Value Added Tax arises only when the output VAT is more than the input VAT. For more understanding, let’s find out what the VAT law says about Output VAT and Input VAT.
Output VAT: Output Value Added Tax is the VAT that is due on vatable supplies. It is derived by multiplying the tax value of the aggregate supply by the tax rate.
Input VAT: The input Value Added Tax is what is charged on business purchases and expenses. These include goods and services supplied in Nigeria or imported.
But there is a restriction. Only input taxes paid on raw materials meant for production of goods meant for resale will qualify for set-off. Input Value Added Tax incurred on capital items or other items not directly related to the goods and services meant for sale, will not qualify for set-off.
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